Australia Today - Aussie dollar higher, can stocks follow?

Market Analysis /
Greg McKenna / 27 Aug 2018

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 every Feedback is welcome

THE AUSTRALIAN DOLLAR

the resolution – hopefully – of the political turmoil in the Australian government helped the Aussie dollar rally up to 0.7330 this morning from a low around 0.7238/39 on Friday when the spill was on.

The punditry is milking this for all it’s worth. New Newspoll’s, intrigue about former Liberal deputy Julie Bishop, and commentary of what the new Australian Cabinet is and isn’t. But from an Aussie dollar point of view the political turmoil is now past as a significant driver of the currency and its value.  That means we get back to the key driver of the AUDUSD and other Aussie crosses which is the outlook for the USD, global growth, commodity prices, interest rate differentials, risk appetite and technical – and everything that filters into those core drivers of valuation.

To that end, the weakness in the USD and the resolution of the turmoil has allowed the AUD to rally back to 0.732/30. That’s something I suggested on Friday afternoon when we heard ScoMo was going to be Australia’s 30th Prime Minister.  But the Aussie hasn’t been able to keep pace with the Euro. Directional it moved with the Euro Friday night but the gap that opened up last week hasn’t been closed.

And it may not given all the headwinds that folks are thinking of right now about global growth and the yield curve - we’ll see. And with a very slow data week here in Australia the key drivers are going to be offshore markets. So keep an eye on them.

To the charts then and 0.7384 looms overhead as the big downtrend line from 81+ cents earlier this year. But the weekly charts suggest we might see a run at this level this week. I’ll discuss the weekly in today’s video. For the moment though here’s the 4 hour Double Bolly band chart showing how important that 0.7380 region is going to be resistance wise.

Click on me, I'll expand
Click on me, I'll expand

ASX INDEXES

SPI traders knocked 1 point off Friday’s 3 point gain for the ASX200. The fact the government is so far behind in the latest poll may worry some – but one of the best market timers I know reckons the ASX is set to head higher again soon.

Interesting moves Friday for the ASX and Friday night for the SPI. While I’m hopeless on the intra-day intricacies of the ASX it seems that the 1 point loss the SPI traders left as a signal for the start of the week might be under-egging it. Sure the Aussie is a little higher which might be a handbrake. But we’ve seen rallies in commodity markets, a new record for the S&P 500 and a general increase in risk aversion. Certainly we’ve also seen the Newspolls saying the government remains in trouble if the results are replicated next election. But I wonder if we won’t see a better day of it today.

Click on me, I'll expand
Click on me, I'll expand

Certainly we are starting to see some room for catch up open up between the local market and the S&P 500 after last week’s market funk. We’ll see I guess. That’s not to say I’m now suddenly all bullish. Australia faces a very different economic outlook to the US and this gap should have been bigger already I reckon. On the day, in the SPI, I’m watching 6,243 and 6200 for clues on the next move.

A LITTLE ON THE ECONOMY

It’s a quiet week for Economics here in Australia. But in the wake of the appalling political turmoil last week and elevation of Scott Morrison to the Prime Ministership I thought it worth sharing a piece I read on Business Insider Friday from former high-profile pollster Mark Textor.

It was shared as a political appraisal of where Australian voters feelings are at. But as I tweeted when I read it, “Forget politics - the #RBA needs to read this. Behaviourally this is a scary list. 12 months on we can add: - the bank said you could afford the loan but it doesn’t feel like it. And now your property is falling in value too”.

It’s a big headwind for consumers. Jobs and a good performance from ScoMo and his government might forestall a collapse in consumer sentiment and retail sales. But it is something that is worth watching. Here’s the article at BI – you should read it.   

And if you really want to know why I focus on housing all the time and hold a strong view folks have borrowed more than they can actually afford then have a squiz at this article from the SMH last week. It says parents are raiding their kids piggy-banks (over-egged I know) because of rising cost of living pressures. More here. Oh, and read that Textor article at BI, really it’s an eye-opener and spot on.    

DATA:

On the data front we can ease into the week here at home. China is set to release industrial profits, then tonight we get the Ifo business climate and expectations data out of Germany, the Chicago Fed releases its national activity index, and the Dallas Fed manufacturing index. Given Robert Kaplan’s recent musings I’m expecting that to be pretty solid.

Have a great day's trading.

Greg McKenna

Chief Market Strategist

gregmckenna.com.au

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