Global Investors May Have Moved On From Australia

Originally published by AxiTrader

The Aussie is under pressure again.

Mild as it may seem at 0.7550 this morning it's pressure nonetheless as the multiple failures above 76 cents in the past week give the bears the whip hand. The question now is where the support level will come back in.

Last night the low was 0.7542 - 10 points above the 38.2% retracement of the most recent rally. This zone will important again today. But it's equally likely traders want to test the recent lows at 0.7515/20 to see if they still hold as well.

For me though I'm wondering about the overall environment for the Aussie and Australian markets.

Now I don't want to over-egg it, but the current environment reminds me very much of the 1999-2001 period when global investors just moved on from Australia to better opportunities elsewhere.

That was the period when the AUD/USD fell from around 68 cents down and though 50 cents to a record low of 0.4775 in April 2001.

The reason I'm seeing this analogy with that earlier period in this current environment is not just because of the rampant bid in tech stocks - or at least the big ones - nor is it simply that Australia's commodity basket is in a downdraft and BHP Billiton Ltd (AX:BHP) its own downtrend.

We also have concerns about the local housing market, financial sector stocks as an extension of that, and we've had a really poor performance on the S&P/ASX 200 relative to the S&P 500, and other major global stock markets.

Chart

I've been banging on about the ASX underperformance to the S&P in my Morning Markets Wrap for some time now. And just like the late 1990's, the sense I get is that investors have simply moved on - away from Australia - to other markets and other opportunities.

Europe's existential threat has gone with the Macron victory. The rise of centrist Europe is helping Angela Merkel in Germany and even Beppe Grillo's 5-Star movement in Italy is reported to have stepped back from its Euro-sceptic approach.

Money has flowed back to the continent as a result.

Likewise the opportunities in tech, and a continued expectation that president Trump will eventually give the US economy a lift have investors focused elsewhere. And the inclusion by MSCI of 222 Chinese stocks in its global stock indexes means you don't need a China proxy if you can buy China direct - or at least more easily with the cover of index inclusion.

And perhaps China's continued transition toward a services-based economy is part of the changed sentiment toward Australia as well. Just yesterday the National Development and Reform Commission said it wants the economy to move to 60% services by 2025 from around 51/52% at present.

That will reduce China's reliance on Australian commodity exports and resource use intensity for any given percentage point of growth.

It's all a narrative that speaks to the Aussie dollar and Aussie markets losing the attention of global investors. We'll see how it plays out in the months ahead. But at the very least it's going to keep the Aussie with an offered tone on any rallies. Any signs of economic weakness will be severely punished.

In the immediate term as highlighted above 0.7532/42 is short term support before 0.7515/20. 0.7585 is resistance in the first instance ahead of 0.7625/35.

Here's the daily chart.

Chart

Have a great day's trading.