Macro Morning: Australian dollar down


Glenn Steven’s Anika Foundation speech lived up to expectations I had for it yesterday. Over many years now Governor Stevens has used this speech to look at the structure and outlook for the economy and it has become his best speech for the year.

Yesterday did not disappoint with the Governor making it clear that however slow the RBA has been to recognise what is really impacting on the Australian household sector they get it now. Of course he was upbeat saying the mining boom had caused a permanent increase in Australian incomes but that the rate of growth was clearly slowing and that the household sector is not in a position to take up the cudgels just yet.

What really got currency and interest rate traders going though was the message toward the end of the speech that the inflation environment is benign enough to allow for an easing. Stevens said:

This has been guided by the flexible inflation targeting framework we have had in place for 20 years now. This framework has prompted appropriate and timely action when needed. It has seen a substantial easing in monetary policy since late 2011. We have been saying recently that the inflation outlook may afford some scope to ease policy further if needed to support demand. The recent inflation data do not appear to have shifted that assessment.

The combination of the speech with the weak data out of Korea, Japan and our own Building Permits combined to knock the Aussie from a high around 0.9210 down to a low of 0.9041.

Will they cut next week? The interest rate futures market thinks so and I might finally be right after thinking they should have the last two meetings. Everything I look at in the economy points strongly to an RBA cash rate at 2.25% perhaps even lower in the months ahead.

Clearly I am not alone and the Aussie got sold, and sold heavily as you can see in the hourly chart below.

aud, audusd, australian dollar, australian dollar price quote, audusd 1 hour

Clearly we are still in our Darvas box and clearly, on the hourlies at least the Aussie is oversold and may rally today. As I wrote yesterday I was short and took profits on the way down closing out the last quarter of my position in the 0.9060’s.

I will respect the box as I have up the top unless or until I see AUD trade under 0.8985 at which point I am likely to dive in and sell some more and do so with gusto.

On stock markets there was more M&A news and the dissolution of a big potash partnership in the old Soviet Union which might whack BHP in our time zone today. At the close though with Facebook up more than 6% the Nasdaq (+0.47% 3,616) made a fresh 12 year high, the S&P 500 (+0.04% @1686) was largely unchanged as was the Dow (-0.01% @15,521). In Europe the better data buoyed stocks with the FTSE (+0.16%), the DAX (+0.14%), CAC (0.46%), FTSEMIB (Milan, +1.64%) and IBEX35 (Madrid, +0.97) all higher on the close.

On global fx markets, the Euro leaped higher but pulled back (1.3262) to be largely unchanged, GBP (1.5238) is off a big figure, USDJPY (98.00) is largely unchanged but the kiwi (0.7983) were lower after weak data.

On commodities Nymex crude was lower (-1.42% @$103.07) and looks like a top is in on the charts. Gold ($1325 oz.) fell but recovered, copper did not like the Korean or Japanese data and is down 2% ($3.04 lb.). Corn was up 1.38% while soybeans fell roughly the same amount.

On the data front there is plenty over the next 24 hours with Nomura Manufacturing PMI and Cash Earnings in Japan, Private Sector Credit in Australia, Construction and Housing In Japan as well. French spending and unemployment in Germany, Italy and Europe before EU CPI data. In the US it’s ADP employment and the preliminary GDP for Q2 Chicago PMI and the Fed Decision early early doors Asian time tomorrow morning.

Twitter: Greg McKenna

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  1. reusachtigeMEMBER

    “Yesterday did not disappoint with the Governor making it clear that however slow the RBA has been to recognise what is really impacting on the Australian household sector they get it now. ”
    So they get that the cost of living here, especially the house prices and payments, are sucking the life out of everywhere else? So we won’t hear the captain saying that house prices need to inflate to “encourage” construction? (Seriously, what sort of idiot thinks that higher prices increase demand, Mr Gucci?)
    Sorry, you give these utter fools too much credit.

    • Deus Forex Machina

      Oh that is a scary Gravatar…

      Yes I think so – I don’t think they are fools they just have an intellectual straight jacket that they must operate on and are trying to break out of…

      But I accept that they have not done the best job ever and have indeed screwed up by driving consumers into the ground