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 Aussie has had an interesting 24 hours, not a massive range but buffeted by events and it sits up 0.15% at 72 cents.
I tweeted yesterday, after the AUDUSD fell on news that other major banks had joined Westpac in increasing borrower rates, that “Folks what we have here, with this $AUDUSD selloff after @ANZ mortgage rate move is what #traders & #investors really think of #Australia's prospects -absent the USD moves- and in the current global #markets funkiness. Battler last 0.7176 down about 30 pips from pre-announcement”.
That means that while the USD’s move still have primacy in the medium term, the overall way that traders seem to be playing the Aussie is with a jaundiced view of both the local and global economies. That’s one of he reasons why AUDUSD and HGc1 have been correlating so strongly on the 10-minute charts recently. The ebb and flow of sentiment combined with the machinations of the USD are the key drivers.
That makes tonight’s non-farms release in the US of uber import. I can’t quite figure out how the market is placed heading into it. On the one hand the 191k increase and fall in unemployment to 3.8% is pretty bullish from the economists. But the price action this week would suggest that forex traders might be a little less optimistic. Either way though the Aussie looks like it is trying to build a bottom, But we’d likely need a move up and through 0.7242/45 to really kick things higher. Then there is the downtrend from 81 odd cents which sits around 0.7340/50.
the ASX reversal continued again yesterday and overnight. The 200 index lost 70 points, 1.12%, yesterday to close at 6,160 and SPI 200 traders have found another 23 points of loses to lop of prices overnight. So it looks like another tough day for the local market.
Carnage. That’s the best way to describe the price action as the buyers evaporate and the ASX has collapsed about 200 points, when you add in the SPI move overnight, from last Thursday high on the physical market.
As you can see in the chart below this is catch a falling knife territory. I think I highlighted 6,100 as the target – 61.8% retracement level of recent rally – and last night’s low was 6,095. That’s the level that needs to hold to avoid a big break.
A LITTLE ON THE ECONOMY
The FT ran an article yesterday about the housing turn and credit squeez here in Australia yesterday. You can read it here, but you can also probably predict what the paper says. And you know my thoughts. But for the uninitiated – and because I haven’t banged on about the debt needing to be repaid for a while – here’s a chart of Australian household debt by world standards. Please note not only the excessive level – it’s gotta be paid back sometime folks – but also the flattening out. Folks don’t want to borrow too much which is a handbrake on growth unless wages increase now the savings rate is down at 1%.
Those that do want to borrow though, they are still telling porkies according to UBS who David Scutt reported yesterday said “liar loans” are still a risk and that “a credit crunch is now a rising risk for Austalia”. Not a risk folks, it’s here in the form of APRA’s reg APG 223.
On the day then, we get AIGroup construction PMI in Australia today, the coincident and leading economic indexes out of Japan and then trade data for France and Germany before the EU Q2 GDP 3rd estimate. We also get Chinese reserves data this evening and of course US and Canadian employment data. The Reuters survey says in the US expectations are for jobs to print 191,000, unemployment to print 3.8%, and average earnings to print 0.2% for a 2.7% yoy rate.
China trade is out tomorrow. AND, AND, AND, watch out for the possible announcement of the next tranche of tariffs on China which could come as early as tonight or the weekend
Have a great day's trading.
Chief Market Strategist
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Ongoing rate curve repricing and risk asset reaction perfectly illustrate how worryingly reliant investors have become on easy money policies