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HappyPip

If by "bail-out" you're talking about the economic stimulus packages of the US, then it could be USD-bearish (thus AUD/USD bullish). Why is this so? More stimulus packages for the US could mean that the Fed or the US government is still not happy with the way things are going in their economy or that they foresee further setbacks to a recovery.

If you are referring to the US bailing out of their easing policies, then things could get USD-bullish (thus AUDUSD bearish) since this implies that the economic authorities are more confident with their economic outlook for the US.

However, that's just from the fundamental point-of-view. Risk sentiment could come into play and this is where things get pretty tricky. Increased confidence for the US economy's recovery usually translates to better prospects for a global economic recovery and this results to higher risk appetite. With investors having a higher tolerance for risk, they tend to dump the safe-haven USD in favor of higher-yielding riskier assets. Thus, bail-outs from stimulus packages could have an anti-USD effect. This would boost commodity prices and also commodity currencies such as the AUDUSD.

So, before determining the effect of a bail-out on the USD and AUDUSD, you first have to be able to gauge whether its fundamentals or risk sentiment that's governing the markets at a particular period. And this tends to change from time to time, doesn't it?

10 months ago