Macro Morning: RBA jawbones Australian dollar

morning1211

In what was a generally a quiet night trade was dominated by the RBA in the Aussie dollar and the Fed everywhere else.

Looking first at the Aussie dollar it is clear that the men and women of Martin Place are both going to cut rates again and are going to get the biggest bang for their bucks by talking about it until it is absolutely necessary and in doing so they clearly are hoping that this obvious easing talk has the desired effect of driving the Aussie dollar under 90 cents.

That’s my hypothesis but I think it is the message that was generally received based on articles in the Financial Times, Wall Street Journal and the Twitterverse. The RBA’s message succinct statement yesterday included:

The Australian dollar has depreciated by around 10 per cent since early April, although it remains at a high level. It is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy…

The Board also judged that the inflation outlook, as currently assessed, may provide some scope for further easing, should that be required to support demand.

No way to misconstrue that message we want the Aussie lower, we need it lower to rebalance the economy oh and by the way inflation gives us scope to cut which, wink wink, might help the Aussie fall also.

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

As noted above Aussie dollar traders heard the words loud and clear and the  market which had previously been bid up all day turned tail after 2.30pm from about 0.9219 trading down to just above important support at 0.9150 then back up through 0.9200 before falling to sit at 0.9142 this morning. I went mega short into the RBA meeting and squared up in front of 50 (cut 80% of the position) and then had a sell order in in front of the 200 hour moving average and the downtrend line you can see in the chart above. But AUD never got that high so I sold in the 80’s last night and am now short about 1.5 units targeting a move back to this week’s lows and then we’ll see.

But 0.8916 remains the next medium term target.

In other FX news euro has broken down under 1.30 and looks biased toward a test of 1.2900 and ultimately the recent low around 1.2840. GBP has some near term support at 1.5080/90 and a break would be decisive while USDJPY has overhead resistance around current levels as you can see in the chart below.

jpy, usdjpy, yen, dollar yen (jpy) price quote

In the US we had more Fedspeak on the menu and New York Fed President William Dudley reiterated the message he and his colleagues gave last week. That message is of course that we are going to taper but we’ll be watching the data as well. He said:

The FOMC anticipates that it would be appropriate to begin to moderate the pace of purchases later this year.  Under such a scenario, subsequent reductions might occur in measured steps through the first half of next year, and an end to purchases around mid-2014.  Under this scenario, at the time that asset purchases came to an end, the unemployment rate likely would be near 7 percent and the economy’s momentum strengthening, supporting further robust job gains in the future.

No doubt there/ Unless the data weakens and does so materially the Fed is about to begin the taper.

Regular readers know that I didn’t and don’t trust the rally we saw last week, the price action doesn’t encourage me at all. Last night stocks weren’t so keen on these comments after rallying earlier on the factory orders data which printed +2.1% from 1.3% last. But I note that the New York ISM came in at 47 from 54.4 last and the IDB/TIPP Economic optimism index in the US tanked falling to 47.1 from 49. At the close the Dow was down 0.29%, the Nasdaq off 0.04% and the S&P also barely moved down 1 point to 1614.

s&p 500, spx, s&p 500 chart, daily

For the moment the S&P 500 is in a tight 1590-1620 range and only a break of this will see a material move.

In Europe the FTSE was almost unchanged down 0.06%, the DAX fell 0.91%, the CAC tumbled 0.65% with sotcks in Milan down a similar amount while stocks in Spain finished down 0.25%.

Commodities

Crude rallied 1.68% to $99.64 Bbl, gold fell 0.98% to $1244, silver was 1.34% lower at $19.32, corn roared 2.52% higher, wheat rose 0.58% and soybeans rose 0.18%. I continue to watch copper closely as it slipped 0.65% to $3.13 lb.

Data 

Wednesday sees the AiG Performance of Services for Australia along with the trade data and Australian retail sales. In China the non-manufacturing PMI is out both official and HSBC indices. Then its Markit Services PMI’s for Europe and the UK and the ADP Private employment survey is also out in the US along with Jobless claims which are out a day early because of the July 4 holiday in the US on Thursday.

Twitter: Greg McKenna

Comments

  1. Is it just my imagination or is volatility in the A$ rather extreme at the moment? There must nearly have been a quid in buying in the morning and selling in the evening!
    Note DFM I don’t have your skills for theis over-night stuff and my interests are a bit more strategic in covering my imports. Nevertheless I appreciate your well constructed commentary as a knowledge addition.

    • Deus Forex Machina

      Yes volatility as defined by intraday ranges has been extreme lately – normally I’d expect maybe 50-70 point ranges with extremes at 90 or 100.

      But around the 20th of last month the average of the previous 20 days (ATR) was running around 170 – which is about where we got to during the European shenanigans in 2011.

      It has backed off to 125 points now but that is still the highest in a year.

      Personally I love markets like this but I’m guessing many don’t.

      Cheers

      Greg

      • migtronixMEMBER

        My algos love this market not sure if personally do 🙂

        100pips in EUR? Insane amounts of money changing hands in that kind of market — still I just set parameters and let the momentum do the work.

        I second Flawse, I really enjoy these Macro Morning posts 🙂

    • Hi Flawse, Or anyone else that has an insight…
      Do most businesses you know of hedge to cover their imports/exports or do a lot of them ride bareback?

      An exporter I know scoffs at the idea of ‘insurance premiums’. He sets his price annually (Eur) by putting his finger in the wind as far as I can tell, & either has windfall profits or losses. His track record is pretty good, but I can’t help wonder if he could smooth things out a bit.

      Any thoughts are welcome.

      • thomickersMEMBER

        absolutely. Cochlear have done this to protect their returns. I haven’t looked into their reports lately, but i know that they have hedged hard enough to not receive advantages in a falling AUD.