Originally published by AxiTrader
The Australian dollar was down again this morning. The easy explanation is that the US dollar was a little stronger overnight while the threat to geopolitics from Israeli Prime Minister Netanyahu's posturing coupled with the dip in US stocks saw a bit of a risk-off tone.
That combination has the AUD/USD trading below 0.7530 while AUD/JPY is at 82.25 and looking like it could break down further.
I'm not going to add a lot to that other than to reiterate what I wrote earlier in Markets Morning. That is, there are many negatives stacked up against the Aussie right now – interest rate differentials, RBA outlook, domestic growth hiccup, global growth slippage, and commodity prices, among other things. But it’s the US dollar which is the big driver right here and right now.
It hasn’t even really broken out yet. So if it does then the Aussie will come under acute pressure. That’s especially the case if 0.7475/80 gives way. Then we’ll potentially see the cascade lower to 0.7330, and perhaps into the 71 cent region.
Unless things change the chances of a run under 70 cents are growing materially. Which is where I want to go this morning.
There is a sentiment shift happening in global markets with regards to Australia, the economy, and by implication the Australian dollar.
I want to do that wirh a simple reference to two retweets I have done in the past 24 hours.
The first has regard to the banking Royal Commission and falling House prices and the fact that Fitch released a report yesterday saying that the housing downturn could pressure Australia's banks
In that tweet, I noted that "10 years later the pent-up worries about the Australian banking system which were so rife then are coming back and the banks only have themselves and their avarice to blame".
APRA wouldn't have had to institute the credit crunch it has, wouldn't have had to drive the focus to tighter loan to income restrictions, and proper expense calculations if borrowers and lenders hadn't allowed lending to get to levels which are unhealthy in both the individual and aggregate experience.
That credit crunch, or more particularly the lending and debt levels that lead APRA and the RBA - quite rightly - to seek to protect borrowers, the economy, and financial stability from further harm has then raised questions about the domestic economic outlook.
And that, in concert with the pent up fears and worries about the Australian banking system and economy many offshore investors have had is manifesting in a lack of support for the Aussie dollar as the tweets below - from Sri Thirunvadanthai, Director of Research at the Jerome Levy Forecasting Center in New York - highlights.
Certainly, the USD is a key driver short term. But the last time we had negative rates against the US and this kind of negative sentiment the Aussie fell to 0.4775.
Just saying.
To the chart now and the 4-hour shows that we couldn't sustain the bounce I talked about yesterday with the higher timeframe downtrend dominating. The dailies show a level of "oversoldness". 75 cents, then 0.7475/80 and eventually 0.7423 look like support levels.
0.7580 is resistance if the RBA pulls a cat out of the bag and talks uber-positively about the outlook.
Have a great day's trading.