Aussie At The Whim Of The US Dollar While The ASX Looks Tired

Originally published by AxiTrader

Welcome to my Australia Today column where I'll have a look at some economics, the Aussie dollar, and the outlook for the ASX200 and SPI.

As ever, feedback is welcome

A LITTLE ON THE ECONOMY

• The property markets appear to continue to slip if the weekend auction results are any guide. It’s looking like Sydney is below 50% with the final number once all the results are collated likely to be in the mid 40% region. Melbourne is not so dire with the final result likely to be just above 50%. But consider where these markets have come from and you get a sense of the continued slide in sentiment in the market. The wealth effect which goes with this slide in housing which while so far manageable appears to be slipping further than many initially forecast. Readers know my view. A combination of APRA regulatory changes, a shift in sentiment, and a lack of affordability mean the high water mark for property prices – in aggregate – is on for a while. How households and consumers react to this is the key to how the consumer economy performs in the next 6-12 months.

• So far it seems they are taking things in their stride. At least that is the take away from the Westpac Consumer survey last week which showed expectations about family finance, the economy, and unemployment all improved. And that’s the key. While this economy can continue creating jobs and unemployment doesn’t rise too far things might be okay. That makes Thursday’s jobs report here in Australia as important as ever. Another strong result might start to set up a decent run to Christmas for retailers.

THE AUSTRALIAN DOLLAR

• The Aussie dollar is being buffeted back and forward by sentiment toward both the global economic outlook and the US dollar. Having been moving in lock step with the USD/CNY for a while that linkage seems to have broken down a little as stocks in China and Asia stabilised. That’s meant even though USD/CNY (along with the USDMYR and other pairs) continued to weaken into week’s end the Aussie was higher on the back of the euro’s rally and the US dollar's weakness. Naturally the fact that copper has been able to also stabilise has helped the Aussie as well.

• But it’s down 0.2% from Friday’s close this morning on nothing of note I can pick up so far (it’s only 6.20 am). And while this move in early Asia may prove itself ephemeral and be reversed later today it’s another hint that the sellers of Aussie linger not too far overhead. On that front the CFTC data released Friday showed the big spec accounts I chart as an indicator of positioning went a little bit shorter taking their total position to -40,973 contracts (~$4.1 billion short AUD) which is getting toward the outer edge of the net shorts we’ve seen in the past 5 years. That said, just before the low in last 2015, early 2016, net shorts rose to around 66,000 contracts. So there are still position limits available.

• And with the performance of metals and mining shares versus the total MSCI global performance at its worst since last December the pressure is still on the Aussie. But it’s very much all about the US dollar and 73 cents. While US dollar bulls can’t make up their minds and the AUD/USD holds 73 cents there is a chance of a bounce. But with all the headwinds I’ve been writing about lately there is still likely to be selling on any rally.

• On the day the levels I’m watching are 0.7428, 0.7445/50 then 0.7472/77 topside. While on the downside the level of 0.7409 is already below first support with 0.7400/03 a short term hurdle for the bears on the day. That’s the region the rally in the last 4 hours of trade pushed higher from. A break would suggest 0.7384.

ASX INDEXES

• To stocks now and the ASX continues to wedge itself toward resolution. That Friday’s rally couldn’t stick is a sign of value exhaustion. But getting bearish this market too soon has been a trap over recent weeks and the reality is that the trendlines – both the one from the April lows and the more recent one from the late June dip have proved sticky and clear levels traders have eyed to buy. Equally, now the US market has rallied, back to 2,800 in S&P 500 terms, the ASX 200’s performance doesn’t look so out of context. So it’s a case of watch the US and respect levels. On the day a dip below 6,200 would suggest 6,185 for the SPI while on the physical those levels are 6,249 and 6,230.

DATA:

Nothing of note here in Australia. But the day ahead is going to be a big one of data here in Asia. We get the monthly triple treat of Chinese retail sales, urban investment, and industrial production data. But we also get Q2 GDP. Economists are forecasting GDP to print 6.7% yoy and are expecting a yoy growth of retail, investment, and production to 9%, 6%, and 6.5% respectively. That’s a big data dump and then tonight we get retail sales in the US for Jun which are expected to rise 0.5% the Reuters poll says.

Have a great day's trading.