Macro Morning: RBA succeeding with the Aussie

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Two trends are emerging at the moment. The first is that the bears are lining up against the Aussie while the second is that the bears are becoming bulls for the US stock market, however reluctantly.

Last night was a quiet night in the US but the Dow and S&P both managed to make new all time highs with the Dow up 49 points of 0.32% to 15,105 while the S&P was up another 7 to 1,633 for a gain of 0.43%. The Nasdaq was 0.48% higher.

Of note in the US was a report this morning highlighting comments from noted doom and gloomer Nouriel Roubini that the stock rally could continue for another year or two:

“There are two forces,” he said. “You have the gravitational forces of the slow economy leading eventually to correction. But then the levitational forces of QEs, zero policy rates, more money coming in the market – not just from the U.S., but from other economies – it’s going to levitate asset prices.”

And while we have no idea on the duration of this rally – neither does Roubini for that matter – as we also said on Monday it is bad news that is needed to knock this rally rather than good news to feed it given the prevalence of QE and free money and likelihood that the ECB is eventually going to join the QE world.

Don’t fight the tape!

But it’s not just US markets on a tear its European stocks as well with the DAX making all time highs itself. Yesterday we saw the release of some very interesting Chinese trade data and while it was suggested there was a bit of dodgy dealing and invoicing in the data the reality is markets can only go on the data and the complimentary rise in German industrial production, which rose 1.2% double  the 0.6% expected, helped European stocks higher.

So at the close theFTSE up 0.39%, the DAX up 0.83%, the CAC rose 0.88% while in Milan stocks rose 0.78% and in Spain stocks rose 0.62%.

On FX markets I got GBP wrong and thought yesterday mornings BRC retail sales might knock it lower but it was dragged higher by the euro’s rally overnight. The euro got close to the top of the 1.30/32 range/box making a high of 1.3194 overnight and it sits at 1.3156 this morning. As you can see in the chart below euro is really going nowhere at the moment but a range break either way would be important for a week or two’s trade. We respect the range until it breaks but will run with the break should it occur.

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

Looking at the Aussie dollar specifically we can see the emergence of a bear trend in its weakness on the crosses and the growing selling talking that is emerging. There has been a paradigm shift in the underlying belief that the Aussie can just keep heading higher and that Australia can be an economic oasis forever. Indeed the Aussie’s lag across the board speaks volumes of the turn in sentiment.

By now we have all heard about Soros’s bet on a lower Aussie earlier in the week and overnight his disciple Stanley Druckenmiller told the Sohn Hedge Fund conference that:

“We think the Australian dollar will come down and will come down hard…Its expensive.”

I was among the first to sing from this hymn book so can only agree and reiterate that I have a lifestyle short awaiting the tipping day when the Aussie does fall out of bed:

aud, audusd, australian dollar, australian dollar price quote, audusd daily

But that tipping point day is unlikely to be above the 1.0100/20 range bottom that we still see as our short term target. But when it goes our target is the 200 week moving average and another trend line from 2011 at around 0.9850.

Watch out for the unemployment number today for a bit of an impetus for the Aussie. While we’ll stick with my lifestyle short into the figure I do not trade or punt this number. Its inherently volatile so be careful.

Turning to commodity markets, gold and silver are bouncing up and down within a range sitting at $1473 and $23.82 oz. If euro is going to break out and USDCAD to head through parity then precious metals might also spike a bit higher as the USD weakens. Crude was up 1.04% in New York to $96.61 and Dr Copper was seriously encouraged by the Chinese and German data rising 1.83% in US trade.

Data

Unemployment in Australia is due out today with a rise of 12,000 jobs and a stable unemployment rate at 5.6%. In New Zealand employment data is also which may provide a trading opportunity for the AUDNZD rate.

Nothing much in the US but in the UK IP and a BoE are out.

Twitter: Greg McKenna