Originally published by AxiTrader
Australia really is the lucky country.
We're blessed with a beautiful country, a wonderful population that has integrated wave after wave of immigrants successfully into a cohesive society, and we are blessed with an economy that has gone more than a quarter century without a recession.
Even the GFC couldn't knock Australia over as the RBA and Rudd government combined to drive a monetary and fiscal stimulus that, with not insignificant help from China, helped the nations skirt the edges of the global economic maelstrom.
A big part of this economic success - which helps drive many of the other success stories within Australia's population and economy - has been the free float of the Aussie dollar.
Since 1983 the AUD/USD has suffered the slings and arrows of global investors and the economy, getting crushed when folks are worried or downbeat about the outlook. On the odd occasion in the 1990's and then again at the start of this decade the Aussie has won the trust and admiration of global investors who drove it all the way to 1.1080 in mid-2011.
And it is precisely because of these swings in the Aussie - which have seen it trade a range of 0.4775 to 1.1080 this century - that the currency has been able to act as a massive shock absorber for the economy adding, or withdrawing, stimulus and adjusting financial conditions as the economy needs.
And so it is today that even though stocks in the US are down close to 2% over the past two trading days, as bonds are rising, and there is a bit of a sense of a risk-off tone in markets that the Aussie dollar is hanging tough at 0.8080.
That's more than a little bit remarkable in a historical context and given the AU/US 2-year bond spread is at -7 while the 10 year spread is down at just 9 points - the lowest in years.
Of course, the US dollar's continued weakness is helping. And yes the Aussie is vulnerable if Q4 CPPI today does a New Zealand and misses to the downside. But it is also clear, as Mark Carney highlighted last night, that a big part of the Aussie's strength is also the wider appreciation that the economy is doing well.
Of the US dollar's recent weakness Carney said, "the US economy is very strong, but relative to a strong US economy, and arguably a strengthening US economy, are others strengthening more, or in a more surprising way? And then there’s an adjustment. But certainly the fundamentals at present in the US are quite robust".
Just take yesterday's very solid outcome for business confidence and conditions as shown in yesterday's NAB survey as sign that the Aussie is benefitting from this economic strength in perhaps "a surprising way" for the bears. Throw in trading, profitability, and employment sub-indexes and there is a clear sign that side of the economy looks healthy. And for me, that means we could see the RBA upgrade its growth outlook at next week's governor's announcement and SoMP.
That's not to say a turn around in the US dollar wouldn't knock the Aussie lower. The AUD/EUR price correlation is still in the high 90's over 35 days.
But it does suggest the Aussie will find support on dips.
Looking at the charts then as we ready for the CPI release today (the market is expecting a headline of 0.6% for the quarter and 2.0% for the yoy number) it is fair to say the Aussie is looking a bit toppy. But to add that the uptrend is currently holding.
The bottom of the channel currently is 0.8037 and a move below that, once it takes out 80 cents, could open a move back to the 38.2% retracement level of this move at 0.7893.
Have a great day's trading.