Morning Report - Aussie to 89 cents

The news headlines are about the troubles in the Emerging markets again but its is really developed markets that are the focus of the big swings and the big capital allocations I reckon. 

So it's been an interesting past 24 hours as the half of life of a crisis, if you might call it that, gets even shorter with the ramifications of a country of more than 1 billion people and a country of more than 200 mill ion people - India and Indonesia - seem to have washed through markets already. Sure the Rupee and the Rupiah are under intense pressure and sure the current accounts for these nations are catching peoples eye but already the markets seem to have moved on. 

Time will tell on this one but my hypothesis would be that while significant money flew into Emerging Markets and the BRICs and will have trouble getting out if it happens all at once the reality of post GFC investment markets is that the vast bulk of money has been moving in and around developed markets and as such that remains the main game. 

Why else would the Aussie be under so much pressure against the Euro, Sterling and Yen in the past couple of days unless it is investors getting out of dodge and moving their money elsewhere. Indeed the Aussie has been caught in a downdraft against the big 3 for the best part of 3 or 4 months losing ground with them as it lost ground against the USD.

 This just means that this is a reversal of the safe harbour flows we saw over the past couple of years and suggests that even though spec positioning is mega short AUD there is also a fundamental basis in it. 

Now add a little bit of an EM problem with Indonesia and you get the Aussie providing liquidity for Asian troubles as it always has. 

So lets look at the Aussie as it looks  this morning.

The first thing to note is if the USD is going to be weak then this puts a bit of a bid tone into the Aussie but overall besides positioning most fundamental factors point to a lower Aussie dollar.

As you can see Monday's rally looks like a double top and while the 50% level of the rally off the 0.8846 low was support and remains support at the moment the chances that the Aussie head lower are growing while it remains below 0.9230. Time will tell and while I'll trade around a bit and while I have reduced my mega short AUD position over the past day I'm stasying structurally short looking for a run at and perhaps through 89 cents again. 

In other markets overnight US 10's and their continental cousins rallied with the US closing down 5 points at 2.82% - still high but at least a move in the right direction. 

This might of been what helped the US markets bounce out of the gates and even though the Dow (-0,05%) did gave back its gains the Nasdaq (+0.69%) and S&P 500 was 0.36% higher. Which was a pretty cool performance given that Europe and Asia were all lower. The Nikkei fell 2.63% and the Hang Seng dropped 2.2% while in Jakarta stocks popped another 3% lower  and this poor tone continued into European trade with the Bourses of Paris, Milan and Madrid all down more than 1% while the DAX fell 0.79% and the FTSE 0.2%.

Commodity markets were mixed with the Ags crushed again but Copper ($3.34 lb.) recovered from Asian weakness to finish 0.99% higher. Nymex crude fell 2% and gold was 0.42% higher.

Data

On the data front it is another fairly quiet day with the release of the Westpac Leading Index in Australia, Chinese leading economic index and CBI industrial trends in the UK. In the US existing home sales are released.