Macro Morning: Australian dollar lags rally

See the latest Australian dollar analysis here:

Macro Afternoon


I’ve been hosed this week as I have deviated from my usual short term technical intra and day trading style in favour of a more rhetorical style I used to use as a fund manager or bank trader. I need to be up front about that lest what I write below be misconstrued as trying to defend my piece on the Aussie souring even though it has rallied 100 pip from the open on Monday.

But when I look at the price action of the Aussie and the Kiwi over the past day or so and when I look at the performance of Dr Copper overnight which was off more than 1% it seems to me that with the data souring globally the Aussie is starting to feel the winds of change. Change that suggests there might be a little rotation away from its role of leader in the global FX landscape and reciever of more than its fair share of excess reserves and spare cash from global investors.

Let me explain.

The Aussie opened the week around 1.0270/80 and spiked higher on Monday. Last night with the big spike down in the Chicago PMI saw the euro rally around 100 pts but the Aussie didn’t move. The reason I would hypothisise is that the Aussie is returning back to a bellwether of growth rather than the safe harbour role it has played for most of the past few years. The reasons were articulated in my piece this week but the price action overnight reinforces this notion.

audcad, aussie cad, australian dollar canadian dolla price quote,  daily

Certainly the euro benefited overnight and the yen strengthened with USDJPY lower but it’s the Canadian dollar which is heading back towards 1:1 with the USD that is also a major beneficiary and the AUDCAD rate that shows that the Aussie is lagging on this bout of US dollar weakness which reinforces to me and us that even though the Aussie is up this week from the open around 1.0270/80 the outlook has soured a little for the battler recently vis a vis its previous place in the pantheon of currency gods.

AUDCAD is very close to breaking down as the trend line above shows and a push below 1.0380 which is the 200 day moving average would signal that the current break is confirmed and target 1.0233. It would also signal the worm has turned for the Aussie

Interesting also and a signal that perhaps the currency game is changing a little is the fact that the AUDNZD had a small rally signalling that the Aussie dollar outperformed the Kiwi which has done so well it pushed AUDNZD down below 1.21 when the “fundamentals”, such as they are, suggest something closer to 1.26/28. We’ll keep and eye on the Aussie and the Kiwi and in particular Dr Copper which because they are signalling that the global economic reality is seeping into FX markets and that has big implications across the board.

Looking at the data overnight the much weaker than expected Chicago PMI data showed a fall to 49 from 52.4 last and the expectation of 52.5 failed to shake stocks with the S&P 500 closing on a new all-time high but it certainly shook the foundations of the US dollar which fell 1 cent against the euro in the blink of an eye. How this can be when the European unemployment data earlier in the night showed further deterioration in unemployment picture is difficult to fathom. Equally in the context of the better than expected result in the rise of the Case Shiller home price index, up 9.3% YoY in Feb, and the huge surge in Consumer Confidence from 61.9 to 68.1 the dollar’s weakness is hard to fathom.

eur, eurusd, euro, euro (eur) price quote

As the chart above shows this US dollar weakness has driven the euro back toward the top of the 1.30/32 box or range it has been in for a while now. One of my favourite risk reward trade set-ups is a top, retracement and then break (the reverse is also true) which then usually projects a move toward 1.382 of the move.

So the key levels in the EURUSD to watch are 1.31995 with a break projecting 1.3374.

Turning to the USDJPY I am more convinced that the point we made on Monday is the right one:

Japan is clearly far from fixed but to the extent that the Abe Government and Kuroda BoJ have made an impact on USDJPY which has weakened 25% against the USD and by implication a little more against the CNY and the Won then you might say job done for a while. Equally as I noted above the inflation expectation is for the rate to be close to target in roughly the time frame set then perhaps the topside pressure on USDJPY has reduced for a while – time will tell.

I continue to hold that view and with the data this week being on the globally weak side yen strength may return for a while.

jpy, usdjpy, yen, dollar yen, dollar yen quote, daily chartjpy, usdjpy, yen, dollar yen, dollar yen quote, daily chart

The chart above shows the yen strengthening with USDJPY sitting in the support zone we have identified this week as key to the outlook. the low overnight of 97.01 is right at the bottom of that zone and a print in the 96’s is likely to bring in further selling.

Turning now to stocks and at the close of play the S&P made another marginal new high up 4 points or 0.28% to 1598. The Dow was up 0.14% to 14840 and the Nasdaq rose 0.66% to 3329. in Europe the FTSE was down 0.43%, the DAX managed to rise 0.51% and the CAC, Milanese and Madrid stocks all fell losing 0.30%, 0.96% and 0.38% respectively.

It is interesting to see the differing outlook between the stocks in the US and the US dollar and then the performance of the Aussie and Kiwi dollars which lagged and Dr Copper which fell. The outlook is certainly turning economically and the performance of stocks in this generally weaker May to November 6 months will be interesting to watch. Tonight’s Fed Statement after their meeting will be interesting to see.

On commodity markets, as noted copper was down as was Nymex crude which fell 1.58%, natural gas fell 1.16%, gold was up marginally to $1476 and on the Ags corn fell 0.11%, wheat rose 1.69% while soybeans fell 0.27%


Its May the first so it s the Labour day holiday in Europe. In Australia today we get HIA New Home Sales and the PMI and in China the NBS Manufacturing PMI. ADP employment is important in the US in the run up to Friday’s non-farm payrolls and the Fed is crucial tomorrow morning.

Twitter: Greg McKenna

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  1. A$/NZ$ is likely headed for 1.14 regardless of our cash rate being 0.5% below yours (historically the NZ$ needs an interest rate differential of about +2% to attract investment funds to the smaller, less liquid economy !). It’s all about debt and capital flows. NZ need more funds than it can shake a stick at, yet holds its interest rates down (to get cheaper funds – now there’s a free market in action). Offshore asset sales of a public and private nature are everywhere, as the country desperately tries to reduce its debt burden without anyone noticing. When they do we will see 1.35 again…

    • Deus Forex Machina


      It will be interesting to watch.

      Technically on the weeklies I can see that as the bottom of a 3 year downtrend channel but fundamentally gee whiz – it can only be the tiny size of actual kiwi flows relative to the stuff you mention and the buying it creates that is driving it.

      disclaimer: this is the single worst cross i trade, or should say dont trade, because i am so bad at it.

      • We’ve got anyone who has debt looking at the bond market for cheap loot eg: “Christchurch International Airport is tapping into “a wall” of money looking for quality investments through its first bond issue to raise debt.” The ‘dreaded’ Chinese are buying chunks of farms and forests ( not to mention residential property)….it’s all go!