Can The Aussie Dollar And Stocks Stand More Instability In Aussie Politics Today?

Published 23/08/2018, 11:27 am

Originally published by AxiTrader

JUST QUICKLY - It's on again

The state of Australian politics summed up in two tweets 5 days apart.

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Source: Twitter Screenshot

THE AUSTRALIAN DOLLAR

The machinations in Australian politics have been a handbrake on the Aussie dollar's full participation in the US dollar reversal. Stuck in the 0.7250 region it’s up 0.2% at 0.7255 but if the previously solid correlation with the euro was holding it would be north of 74 cents.

Not much to say on the battler today. That is other than the shenanigans in Canberra have broken its nexus with the euro and thus with overall US dollar weakness. Certainly, the euro outperformed a few other pairs as well, but the Aussie's breakdown was reasonably synchronised with the political ructions.

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One thing worth noting though for the Aussie going forward is an article, again in the AFR, which effectively suggests the policies that putative Prime Minister Peter Dutton is likely to pursue would impact notions of investment risk in Australia. Am I drawing a long bow? I’m not sure, have a read. But the populist positions are at odds with the supposed conservative credentials Dutton brings, or wants to, the top job.

For the moment though the Aussie is holding in the mid to low 0.7350 region. Not doing terribly much against the US dollar but losing a little ground on some of the crosses. That it couldn’t get a lift on decent construction work numbers yesterday tells you investors are watching Canberra. It’s looking a bit wobbly on the 4 hour charts and I’m expecting a run back to the 38.2% retracement level of the upmove which comes in around 0.7312.

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ASX INDEXES

After another disappointing day on the overall market yesterday - where the big miners and banks got belted but where there was a capitulation of the tech shorts with a couple of 30%+ gains – the index ended down 20 points. SPI traders, buoyed by the fact the US didn’t kick lower and some decent moves in metals and mining shares globally , have added 17 points overnight.

Interesting story in the AFR this morning about an Ellerston Capital bond manager Brett Gillespie saying, “It's remarkable how little attention there is on the possibility of a Labor victory…When you think about the negative gearing on existing properties [a Labor government] could be the game changer for the housing market”. Beside that he said, “It's a game changer for the whole equity space, the tax cuts aren't there, negative gearing won't be there, they'll be changing the capital gains rules”.

This is a genuine investment risk folks and one worth watching. Now don’t get me wrong I am not saying Labor is an investment risk – the reality is that save for neg gearing the overall policy platforms of Australian politics aren’t that dissimilar in a macro sense. But the key investment risk that may surface is OTHER INVESTORS FEAR OF LABOR.

It’s like this cartoon….

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Anyway, the SPI200 actually has had a positive day over the past 24 hours and is currently up around 18 points from where prices were at the close yesterday afternoon. The question to ask is whether or not the buyers will come back in, or rather like Ellerston’s Gillespie investors and traders will stand to the sides. The key levels – as the chart of the physical ASX shoes – are the support line at 6,260 and then yesterday’s low at 6248. The corollary in SPI terms for importance is the 6180/6200 zone.

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A LITTLE ON THE ECONOMY

So, I’m want to say Australia has the best central bank on the planet. But I’m thinking of changing that mantra to Australia has the luckiest central bank in the world. That’s because whereas I’ve always given them credit for letting the Aussie dollar rise and fall to stabilise the economy I’m now changing my view to the reality they have been lucky the Aussie dollar rises and falls to stabilise the economy.

Except the last few years though when they thought the Aussie would fall but it hasn’t. Certainly not to the extent there comments about the impact that Fed tightening would have on the AUD/USD have suggested. So I’m wondering if the RBA might be faced with materially lower inflation and domestic growth considerations because they got it wrong. And while I fully understand why Phil Lowe won’t want to cut rates because of housing and why he keeps warning recent buyers that Yazz was in fact wrong and the only way is not up.

Anyway, why the proceeding RANT? Because yesterday the RBA held out hope again as a strategy. Deputy governor Guy Debelle said (my bolding), “we would like to be more confident that inflation will be sustained at a rate consistent with the target”. So would we all Guy, so would we all. Anyway Sam Jacobs has a good wrap of Debelle’s speech over at Business Insider.

DATA:

Looking at the day ahead the big event is the release of the raft of “flash” PMI’s across the globe. That will give us a quick sniff test on the health of the global economy. Singapore inflation is out in our timezone today along with the Japanese leading index of economic growth. Tonight it’s the ECB minutes that will capture the attention. If the Fed was keeping an eye on the trade tensions surely the ECB will be worried. We’ll see. Later in the US it’s jobless claims, and new home sales.

Have a great day's trading.

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