AUDUSD - can't hold against equity weakness indefinatelyIf you saw my webinar on the Australian dollar the other day you will know that I believe the AUD has taken on the role of a genuine safe harbour with everything that is going around the world at the moment and with super low interest rates. but if you did have a look you will also know that there are two caveats to this status.
The first is that when the sun comes out in the global economy once more money will no longer need its safe harbour and so will flow out of the Australian dollar - that is a low probability even in the next couple of years though. The other caveat though was related to the performance of the equity market and the fact that if it breaks wide open, which it hasn't yet, the AUDUSD is unlikely to be able to hold firm against it as risk is taken off the table and buyers just step back for a bit to evaluate things.
And so it was overnight that the AUD gave up its intra-day gains as the weakness in equity markets sapped a bit of the bullishness. The really weak close on the S&P 500 does not augur well for the AUD bulls even though the RBA's quarterly statement on monetary policy due out this morning is likely to be a bit rhetorically aggressive in justifying why they didn't cut at this week's Board meeting - any rally on this if equities are still weak in night trade will see traders and importers doing some selling would be my guess.
The close on the S&P 500 was awful and the AUD looks biased back towards a retest of 1.0350 which is the trendline you can see on the daily chart above and also and coincidently the 38.2% retracement of the recent rally. As you can see AUD has plenty of support, at least in a fibo sense, all the way down to 1.02 and indeed the recent range bottom at 1.0150 looks solid for now.
EURAUD - still under pressure but supported by AUDUSD pullback
The Euro remains under pressure as the equity sell off drives a safe haven bid and the USD and the Yen rally - the Yen in particular. And against this backdrop EURAUD continued lower. However as equities pulled back and weakened into the close the EURAUD rallied back of the lows of the day.
It looks like time for a rally on this cross after a really big sell offs and I'm targetting a move back into the 1.2316-44 zone.
AUDJPY - smashed as Yen benefits from safe haven flows
For a while now even with its own acute troubles the Japanese Yen gains whenever risk goes off and the current situation is no different. USDJPY is under intense pressure and could be headed lower and as such with this combination outlook and the expectation the AUD is heading lower probably will push AUDJPY lower as well.
What an ugly false range break this has been this week - this of itself builds downside momentum but the pressure as noted from a USDJPY sell off won"t help. 82.27 which is the 200 day moving average seems a natural attraction point and below there 81.67.
AUDNZD - roars higher
AUDNZD really does trade well off the relationship between the two nations unemployment rates and the fact that the NZD rate spiked to 7.3% but AUstralian unemployment stuck firm at 5.4% propelled this cross sharply higher.
The question is that if the theme of this not today of a weaker AUD is to play out what impact will that have on this pair. That is not an easy question but it is more likely than not that if this comes to pass AUDNZD will head lower. Short term a move through the 200 day moving average at 1.2784 is required to open up further topside and support is 1.2698 - thats my short term target.
Have a great weekend
Catch me on Twitter @gregorymckenna or @FX_Global