Originally published by AxiTrader
THE AUSTRALIAN DOLLAR
Risk off is never good for the Aussie dollar. And so it has been the past few days as the focus of traders and the pressure applied to Turkey has intensified. The AUD/USD traded down to the lowest level since early January 2017 this morning hitting 0.7251 before bouncing back to sit to 0.7289 as I write.
That the Aussie is under pressure is no surprise because it has always been and remains the world’s favourite currency punt. And consequently, the AUD/USD doesn’t usually do well when markets get into a funk.
Whether that is still a relevant trade in 2018 can be debated given the AUD/USD isn’t that far from what you might calculate as fair value. The reality is that for decades traders have been trained to sell Aussie if things in the global economy go awry.
The key point I would make to you this morning is that things in the global economy haven’t really gone awry yet, not even close. Of course, Turkey is under acute pressure. But that idiosyncratic kerfuffle has only just really gained resonance in other markets. The lira's fall versus other markets – save for Argentina – needs a separate axis on a chart. It's that much larger.
So the trouble for the AUD/USD may be in front of it, not behind it.
I say that because if contagion does grow, if the reality the Fed will keep tightening because of US inflationary pressures grows, if the US dollar keeps strengthening, and because the Powell put is likely to be much further away than the Greenspan, Bernanke, or Yellen puts things in markets could really kick off. They haven’t yet. So no point getting to bearish.
But the charts suggest further weakness ahead for the Aussie. And of course if stocks start to swoon, look out below. 71.58 seems like a natural attraction.
ASX INDEXES
Looking at the SPI print of +11 at the close of trade Saturday morning reminds me of a TISM song about River Phoenix. But hey, the narrative that a lower AUD/USD cures all ASX ills has worked really well over recent months. So why not?
The question facing traders though this morning, as the S&P futures drop 8 points, as forex markets get funky is whether or not the ASX 200 will finish in the green not whether it will gain 11 points.
TMy sense is SPI traders are likely to have overestimated the challenges the ASX will face today. I’ll keep it simply to the charts today and reiterate what I said on the ASX 200 above will and expect it will come under some heavy pressure likely testing and breaking the uptrend at 6,260.
In my preferred SPI terms my target is a move toward 6,145/60 from Saturday mornings 6,229 close
A LITTLE ON THE ECONOMY
The RBA’s quarterly SoMP Friday was an interesting document. I’m left with a feeling that the RBA has an absolute opposition to cutting rates again unless they really have to. Why exactly that is I’m not sure. We know governor Phil Lowe doesn’t ant to restoke the housing market – or at least the price part of it. Anyway my thoughts are best contained in a stream on Twitter Friday which I’ll repeat here.
Please note the syntax is Twitter based and each dot point is a separate tweet:
- Out earlier when the #RBA's SoMP was released. Have just finished reading it. Seems they're either genuinely the most optimistic forecaster out there on Oz or they gild the lily to avoid having to cut rates because they think all their buddies in Central Bank land got it wrong.
- I struggle with an #RBA which was always so pragmatic & aggressive - Bernie, Macfarlane, Stevens But under Lowe seems timid...he's clearly had a bent against cutting for years but he needs to explain why the RBA is so relatively optimistic on wages and inflation
- Or Lowe needs to explain why no matter what he won't cut rates. He may have a very good reason...But he's at risk of destroying #RBA credibility if #ausbiz wages and inflation stay low
DATA:
Looking ahead it is very quiet on the data calendar front. Chinese loan and money supply data is about it. All eyes are gong to be on Turkey and worries of contagion. For the moment that’s not happened to the extent we’ve seen in the past.
Have a great day's trading.