AUDUSD - needs to hold support at 1.04
Interesting comments from the NAB FX team this morning that the Australian Government's admission that it won't get anywhere near a surplus this financial year could actually turn out to be a good thing for the Australian Dollar. It is an interesting topic and one that makes a lot of sense if you understand how global investors set the limits on which they can or will allocate their money into certain investments or countries.
The NAB said,
...yesterday’s admission by Treasurer Swan that he is no longer committed to delivering a budget surplus in the current financial year brings to mind an adage taught to this author by his first boss, that ‘You need supply to fell a rally’. This was from a US Treasury market specialist and is a variant on Keynes’ interpretation of ‘Says Law’ - that ‘supply creates its own demand’. The fact that ACGB supply is likely to be between $10bn and $20bn higher this fiscal year than would be the case were a surplus to be delivered, will be encouraging to overseas investors and where liquidity constraints look to have begun impinging on the willingness to continue buying AAA rated Australian sovereign paper. Remember foreign investors have accounted for over 75% of demand in recent years.
Equally the NAB points out quite rightly that if the Government is not running a surplus, or trying to anyway, then they are not seeking to take money out of the economy and as such the pressure on the economy from the Government sector is taken away and therefore the accommodation that the RBA needs to provide is materially lessened.
So not only can offshore investors buy more Aussie Bonds they are likely to get them at a higher rate than if the Government had of continued with its push toward a surplus.
Looking at the price action the Australian dollar is off the recent highs by about 100 points as it sits at 1.0482 this morning and while the 1.0450 region holds it looks ok in the very short term. Should this level give way then the important support zone of 1.0380/1.0400 comes into play.
EURAUD - trying to break higher but constrained by Euro
The EURAUD made a marginal new high overnight at 1.2682 before pulling back to 1.2632 this morning. Overall EURAUD has been higher 8 out of the last 9 trading days and it has come very close to a full retracement of the fall from Mid-October to early November which would see it back at 1.2730.
Where to from here is more problematic and really hinges on the Fiscal Cliff posturing that is occurring in the US at the moment. It seems that if we get a resolution to the cliff then the rotation into risk and away from safe havens will continue which appears to be a market that benefits Euro more so than either the US or Australian dollars at the moment.
If however we get more rhetoric and less agreement in this very thin next two weeks of trade then it is more likely than not that the US dollar and to a lesser extent the Australian dollar will benefit to the detriment of the Euro.
Looking at the 4 hour chart above you can see a nice little double top at 1.2682 that can be used as a catalyst for trade. A move through 1.2585 would open a deeper move.
AUDJPY - 89.07 tough to break
Certainly the BoJ's increases accommodation of another 10 Trillion Yen was welcome and clearly a move toward the demands of the incoming Government the fact that they did not deal with the issue of the inflationary target just yet was taken as a small negative and USDJPY and AUDJPY were victim to the old "sell the fact" trade.
The 138.2% projection of the break out comes in at 89.07 and has so far not been touched with the AUDJPY high this week at 88.97. Even though AUDJPY rallied sharply off the lows over night at 87.84 the overall technical indicators suggest further consolidation in price and time over the next few days.
AUDNZD - nice bounce
Kiwi has been hit hard this week both outright and then in comparision to the Aussie which has allowed AUDNZD to once again bounce nicely from the accumulation zone we have highlighted in the recent past. The longer term indicators of AUDNZD continue to suggest that AUDNZD should be headed toward 1.28 but in the short term on the 4 hourly charts AUDNZD needs to hold 1.2546 which is the uptrend line on the 4 hour chart below.
Catch me on Twitter @gregorymckenna or @FX_Global
