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
Even with the march of the USD the Australian dollar is the big G10 forex story this morning with the political turmoil of the Liberal Part implosion seeing it lose 1.3% over the past 24 hours as it crashed to 0.7250 this morning.
There’s likely to be – but not certain to be – a party spill around lunchtime today when, assuming it happens, the Australian Prime Minister will not stand. The challengers are former Home Affairs minister Peter Dutton, Foreign Minister Julie Bishop, and Treasurer Scott Morrison. Interesting day for the AUDUSD.
This morning at 5.45am I Tweeted, “Here's the chart that shows neatly the impact of the @LiberalAus implosion on the $AUDUSD in last 24 hours. Aussie 0.7240 -1.44%, $EURUSD 1.1534 - 0.55%”.
All I can say is what a shambles. And I guess I have to say that my comments this week that politics doesn’t usually upset Australian markets was wrong. It’s usually been the case over my career that it doesn’t matter to trader. But I guess in a world of Trump, Brexit, Putin, Erdogan, Duterte and many other populist leaders the type of instability and lurch in policy Dutton has already articulated, combined with the reality that the whole world knows this will be Rudd-Gillard-Rudd-Abbott-Turnbull-Dutton/Morrison/Bishop has simply given the bears the whip hand on a day the USD was doing beter anyway. So the path of least resistance for the Aussie was lower.
Given nothing else matters really for the Aussie today, though Jackson Hole and Powell’s speech will naturally impact the USD side of the cross, here’s my best guess on the reaction of the markets to the various scenarios that may flow from the possible new vote today. Remember it may not happen. Assuming it does though, a clear win for Morrison or Bishop is good for the AUDUSD because we get back to where we were and either of those can probably acquit themselves well in the next general election. So trader worried about instability can rest easy. A clear victory for Dutton is probably also positive, but less so than the other two because some folks worry he’ll get trounced in the next election anyway and there are the concerns some have from a Labor government as I articulated in yesterday’s piece. A tight win for any of the candidates is probably a little bit of poison and any bounce is likely to prove short lived.
7185/7200 is the key support level that must hold. A break opens 0.7125 but more significantly ,y medium term target at 0.6994.
Despite coppers fall and the weakness in offshore markets SPI traders have seen some positivity somewhere and added 22 points overnight. Good luck with that folks, maybe it's the weaker AUDUSD and perhaps that will stick if we get this mess resolved in politics.
The ASX took out the little uptrend from June and the previous day’s low with the close at 6,244 yesterday. SPI traders have added 19 points overnight and we’ll see if – given the political turmoil – we end up seeing that kind of move. For me the 6,239 level looks like a big one on the ASX 200 for me. If that breaks then the outlook fundamentally shifts lower.
In SPI terms the level to watch is 6,180/6,200. Here’s the chart.
On the day it’s Kiwi trade, Japanese inflation, and Singaporean industrial production in out time zone. And the LibSpill political mess of course here in Australia. Tonight it’s Fed chair Powell at Jackson Hole as well as German GDP and US Durable goods.
Have a great day's trading.
Chief Market Strategist
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Soaring US yields trigger the wrecking ball effect as yields become a source of volatility for risk, rather than a source of support