AUDUSD - offshore sentiment versus local reality
Yesterday the release of HIA New home data in Australia showed how little impact the RBA's rate cuts have had on Australia and Australian's appetite for debt and new investment. So in an environment where the mining boom is waning and where Australian's are still de-leveraging the likelihood is that GDP growth is disappointing over coming quarters and year and that the RBA will have to cut further - 2.5% is probably a reasonable target - an AUDUSD above 1.03 is truly remarkable.
But offshore buyers continue to favour the Australian dollar over all else it seems - largely as a result of not very many reasonable alternatives in the current ZIRP dominated world.
Indeed RBA Deputy Governor Phil Lowe overnight gave an interesting speech on where Australia sits but of most note for the FXStreet audience was his comment on what is holding the AUD up. Lowe said that it is a combination of higher Australian rates and portfolio flows that are supporting the AUD, it is also likely that these portfolio flows help explain why the exchange rate has changed little since mid year despite a general softening of the global outlook and a decline in key export prices.
We all know that so its not particularly insightful - but it does highlight the risks and something that we and others will be watching. That is, as the Australian economy weakens, as the budget deficit worsens, as interest rates are lowered and lowered again the probability of offshore investors hitting a so-called "tipping point" and exiting grow. It is probably not yet and probably not even in the next 6 months (unless equities tank) but it is something to keep on your radar.
Overnight the Australian dollar was constrained by that roofline resistance again – very nicely actually as you can see above. Yesterday’s new home data really highlighted the difference between what we are seeing and experiencing here in Australia economically and what the world see when it looks at the Australian dollar. Its an important point to remember because economics does not always drive currencies of FX markets. For the moment however like the EUR AUDUSD is really just trading a range with sellers around 1.04 and buyers around 1.0200/30 and below here the range bottom at 1.0150.
EURAUD - rally should fade
With the USD weaker overnight the Euro rallied again off that very important 1.2880 region with a low at 1.2884 before rallying a full big figure. The AUD benefitted from the Euro's rally but lagged it a little which drove the EURAUD back higher. Like the EURUSD the rally forestalled the change of trend that is very close but is not yet in place.
While we thought we'd get a bounce yesterday and this occurred (although not quite as high as 1.2533) our overall bias remains that EURAUD will head back toward toward the 1.2344 range bottom.
AUDJPY - just a big old range
The BOJ's "disappointing" addition of just ¥11 Trillion was a lesson in how markets can react irrationally - at least in a fundamental sense. Take this quote from Reuters I saw this morning for example,
"It was a very skeptical response to the BOJ policy meeting, made worse by the fact they have revised lower the growth and inflation outlook," said Jane Foley, senior currency strategist at Rabobank. "That has seen the yen unwind a lot of the softer tone we saw going into this meeting."
Sure it's buy the rumour sell the fact but the idea that the Yen strengthens because the BOJ lowered their growth and inflation outlook is just fundamentally back to front.
For AUDJPY however as you can see in the chart below it is just in a big old range that stretches back to June this year.
As noted yesterday when I look at the dailies I'm convinced that AUDJPY has a further pulllback in it and the shorter time frames are inconclusive. Support on multiple time frames is 82.20/25 which is the recent lows and the 200 day moving average. A fall through here is likely to accelerate the selling.
AUDNZD - Still consolidating
Again no real change from yesterday when I wrote that "The AUDNZD looks to have established an interim high for the moment and is looking to consolidate...For the past 7 trading days the AUDNZD has been in a topping or consolidation pattern"
It feels more like topping to me on the shorter time frames as you can see in the above 4 hour chart. First support is 1.2570 then 1.2530 and 1.2490.
While I am always trading remember I favour this cross much higher over time so any sharp fall is an opportunity to accumulate.