Macro Morning: Australian dollar bounce?


Is the Aussie Dollar low in?

It’s a question worth asking after the move to 0.8846 yesterday was just 16 points above the tentative trend line that I have drawn on the weekly charts. Many readers will think that the trend line stuff is witch craft but techincals are a big part of my toolkit.

Supporting the notion is that the low might be in is the fact that the market is just so short at the moment in terms of the speculative community. The CFTC commitment of traders report released Friday afternoon New York time showed that as at last Tuesday (when the Aussie was above 90 cents) net shorts on the IMM were at an all-time record of 74,000. It would be reasonable that the price action since sees even more short positions undertaken.

Positioning per se does not mean a currency is going to rally because the way the speculative community trades is all about catalyst and the catalyst for a wholesale liquidation of shorts would have to be a very big rally in the spot price, maybe a few hundred points. But what all time highs in spec shorts does do is it infers that limits are being utilised and as such it implies that the available “space” for further shorts might not be that great. Which means that the balance of risks starts to change for the pair, in this case the AUD, we are looking at.

So as we approach 2.30pm today there is a real chance that the Aussie rallies on the back of the expected RBA easing, or at least doesn’t fall too far.

Another reason I say this is that I reckon the RBA is going to be a little more upbeat in their communique this month.

Moving interest rates during an election used to be something that a central bank in Australia was loathe to do. But the current RBA Governor has shown himself a man above convention and has moved rates when and if he deems necessary whatever the point in the political cycle.

But I also reckon that the RBA is going to tell us that interest rates are working. After last month’s decision to not cut the RBA said we were growing below trend but also that:

The easing in monetary policy over the past 18 months has supported interest-sensitive spending and asset values and further effects can be expected over time.

So we just might have seen the low in the Aussie dollar in this run as you can see in the chart below.

aud, audusd, australian dollar, australian dollar price quote, audusd weekly

Clearly this is tentative and clearly my channel is speculative but the CFTC guys are mega mega short as I discussed yesterday and at more than 74,000 net shorts is an all time record. This does not mean they are suddenly going to have to flip their positions, the Aussie would have to run a few hundred points to achieve that, but as I noted in the Financial Times article this morning this means there is not a lot of “positioning space” for fresh shorts down here in the 88-89 cent region.

So the balance of risks is shifting for the Aussie short term, only short term, but shifting nonetheless.

Looking overnight and we see that data yesterday for global services was not too bad with many countries from China to Portugal and especially the UK beating both last month and expectations in the Markit non-manufacturing PMI’s released in the past 24 hours.

This probably contributed to stocks being a little weaker on balance in the US and Europe in what was fairly quiet trade. The Monday after non-farms is often a bit of a holiday and at the close the Dow (-0.30% @15,612), the S&P (-0.16% @1,707), the FTSE (-0.42%), DAX (-0.11%) Milan and Madrid all lower. The Nasdaq and the CAC managed to eke out small gains but the highlight of the night has been the announcement this morning that Amazon founder Jeff Bezos is buying the Washington Post.

On commodity markets we saw falls across the board which is a bit weird given the US dollar move but the data is about services not physical inputs so it kind of makes sense. Nymex crude fell 0.47%, gold was down 0.57%, copper down a penny of 0.11% and our friends the Ag complex were at it again with corn down 1.47%, wheat off 2.35% but soybeans were more quite losing only 0.09%.


Today we see the release of  ANZ job ads, ABS House Price Index, trade data and then the RBA in Australia. Japan releases its leading and coincident economic indices and in Europe we get IP and GDP in Italy, IP in the UK and factory orders in Germany. Canada releases its trade data as does the US.

Good Hunting

Twitter: Greg McKenna or you can copy my trading at FXCopy GregMcKenna

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  1. migtronixMEMBER

    I think the ASX has seen a high – closed the inverted head-and-shoulders – but I don’t think AUD has seen its lows. Metals can’t catch a break and I don’t think the aussie will either — those sept puts @ 9700 are so in the money its a joke, to say nothing of the dec puts.

    Japans having a whole lot of fun this morning with the nikkie AND JPY tanking

  2. Could some of the CFTC shorts be a hedge against longs? So maybe the market is not short at all. Remember – the move down in the AUD was prolonged and sustained with little in the way of bounces. Consolidation has occurred through time rather than higher price.
    Wording from RBA will be key.

  3. Posting this for posterity, and out of interest to see how the rest of the year unfolds.

    The middle picture of the forecasting array on the first link is the one i’m interested in.

    based on my crude reading, it looks like we’ve had our run down, this month we’ll reverse and rise in to november where we will again turn down. december is another rally and then january is the reckoning. or nothing of the sort may happen whatsoever.

    i’ll be interested to see if his directional changes work out..