Australian dollar soars into New Year

See the latest Australian dollar analysis here:

Macro Morning

by Chris Becker

Well the Pacific Peso has started the new year over the 70 handle versus USD, capping off a big rally since the start of December:

In the short term, momentum is hugely overcooked, running at twice the normal level that happens during a rally, so expect a retracement soon. This rally is likely correlated to the rise in iron ore prices coupled with the inherent weakness of the USD during the usual Santa Claus rally on Wall Street.

But context is everything and it shouldn’t require a short term FX trader to remind economists and other tea leaf readers that this rally is not exactly setting new records, with the monthly chart showing how very average this move has been:

Price has lifted off of support, getting back above the five year low level after reaching 66 cents, but has the low and high moving average lines show, this is a typical range for the Australian dollar.

In the New Year, once the economists and forecasters return to their desks at the institutions, expect more upside revisions and the inevitable fall back in the Pacific Peso, just as the iron ore restocking finishes in China and sees a dip in that “precious” metal.

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  1. Excellent analysis CB.

    This is a really nice move in thin Xmas trading to take out a lot of shorts. (although CFTC short positions increased to -46??)
    Regardless of CFTC, in normal market many shorts have exited.
    The higher we go now the lower we go next year.
    Let’s hop we see above 71c
    I am not sure if we will but we might as market over extends.
    Would be good to see 71/72c

  2. opinion on china reducing the reserves banks need to hold? i assume like the article i read that this is more for the common person and keeping spending up rather than big investments but found it interesting, guess they are worried about all those other banks going under.

    • They are running out of road and lowering reserves just allows banks to extend more credit. Rumour has it, borrowing is heavy right now and my suspicion is it would be to service (never mind repay) debt and some to go abroad (if possible). SAFE is cracking down further on capital flight and banks/bankers are being severely punished for failing to follow procedure when sending money abroad.

      Hard to see the reduction in reserves having a significant effect but the authorities will try to keep the various bubbles from imploding.

      • If their real estate bubble bursts there will be blood on the streets. Everyone went all in on that and hundreds of millions who thought they were comfortable or rich depending on circumstances will find out they were deluded. It will be absolute carnage in a real world sense

          • I can’t comment on who is more greed entitled, but I know that if I had to bet on whether the Chinese people or the Australian people would ensure real world carnage i.e. genuine blood on the streets, over a real estate bubble popping, I’d bet everything I owned including my life, on the Chinese people. They have form, we do not. It’s in their cultural dna but not in ours. There is a very valid reason why they are developing the tools of oversight and control that they are.

  3. A pullback next week before heading a little higher maybe – Pending Twit & RBA Qualfiers…….

    • I feel sorry for Patsy MARTIN being shoved under the limelight to blind us with GIGO science.