The Aussie has spent the last 24 hours working off the extreme oversold position on the hourly charts but it continues to remain vulnerable and I remain committed to my view it is going below parity as articulated recently when I said:
I’m going to make a big call and say that on the basis of my fundamental economic view and particularly on the basis of my technical view the Australian Dollar is going to head under parity, probably toward 0.99 perhaps a little lower.
In the intervening week the market has continued to look askance at the Aussie Dollar and the down trend line has been reinforced numerous times as you’ll see in the charts in a little while.
But first i wanted to quote a piece the ANZ put out yesterday afternoon from the Head of Currency Strategy Richard Yetsenga who just last week was still bullish the Aussie Dollar. Richard wrote:
Well, after being the golden child for so long, the AUD just can’t take a trick at the moment. With the jury out on China after inconclusive PMI data (in the market’s eyes), a done-deal RBA rate cut hanging out there (with speculation now of whether there is more to come) and evidence now that the export story seems to be struggling, the AUD is at risk of a larger correction than we had been considering.
There are some one-off reasons for exports having been weaker this month and last, but you only need two one-offs to draw a trendline. And given how other elements of the outlook have deteriorated, and given where the AUD is in valuation terms (200 yards from the top of Mount Everest), the trend in the trade numbers is adding to an uncomfortable dynamic for the currency. The trade deficit is back to where it was in early 2010, and net exports are now on track to possibly detract from Q1 GDP according to our economists.
In the near term we are left with China as the only obvious potential saviour. Chinese markets need to respond positively tomorrow or China needs to ease policy, to arrest this broadening decline in the AUD. The H shares in HK have traded well since the weekend; but this could just be the influence of the positive price action offshore the first two days of this week.
Now obviously last night’s poor Spanish Bond auction and the sell off this engendered in equities hasn’t helped the Aussie Dollar’s situation at all and the Hang Seng is down 189 points in trade today for a loss of almost 1%.
So it looks to me like we are going further south on the Aussie Dollar as the fundamentals get undermined and a bearish technical picture is reinforced.
Lets look at a couple of charts.
First the hourlies where you can see that the oversold position, as illustrated by the MACD has or is being worked off but that the 1.0305 zone hasn’t been conclusively bested yet which is necessary for a run toward 1.0350/70:
Indeed I shouldn’t preempt but there could be a good selling opportunity again some time in the next couple of hours/tonight:
The Dailies show a very clear downtrend as you can see below but we are in the support zone I highlighted yesterday in my piece. So I’m not expecting a crash just yet and indeed we may even get a test toward the top of the channel which has been so strong lately which comes in at 1.0385 and a zone the strategy guys at CMC Markets also think is a decent sell opportunity.
Easter markets are funny markets hopefully quiet but always pretty thin so we might see a spike in volatility in the very short-term, and this bounce, if that’s what it is as positions are squared looks set to be short-lived.
Have a great and safe Easter
Gregory McKenna
www.twitter.com/gregorymckenna
Please remember these are not recommendations for you to trade these are my views and I have my risk management tools and risk parameters that you do not have access to. Thus, this blog is for information only and does not constitute advice. Neither Greg McKenna nor Lighthouse Securities has taken your personal circumstances, objectives or financial situation into account. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.