Australia Today - The Aussie dollar and stocks look pressured again

Market Analysis /
Greg McKenna / 10 Sep 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 Aussie had its weakest close in about two and a half years Friday and is at 71.10 cents against the USD this morning. That's its second big weekly fall in a row.

Obviously the weakness in the Aussie is about the global backdrop. Otherwise the fact that Q2 GDP last week was so strong and that the Australian CESI score at 21.9 is world leading would be supporting the AUD against the USD and the rest of the forex universe. 

In fact, the Aussie is doing so poorly on that front that EURAUD broke sharply higher on Friday afternoon and night. It's breaking toward 3-year highs but it is worth noting that close was the strongest close for EURAUD since the GFC was in full flight back in 2009. 

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

Germane to any discussion about the outlook for the Aussie dollar is the outlook for global growth and in particular the outlook for China. So on that front it’s worth highlighting something I read on Bloomy over the weekend from Rajiv Biswas, Asia Pacific chief economist at IHS Markit in Singapore. Biswas said, “With further large-scale U.S. tariff measures imminent, Chinese exporters will be hit hard and China’s GDP growth rate in 2019 is likely to be dented… If the U.S. keeps ramping up its tariff measures against China, the export sector will face a long, hard road ahead despite government measures to mitigate the impact”. That’s the top of mind kind of thing offshore investors are going to be thinking when it comes to the AUDUSD and AUD crosses. And that means rallies are likely to remain offered.   

So the Aussie is down at 71 cents this morning and looking offered. Momentum has reintensified at the end of the week and price closed on its lows. MY scan says that the MACD, ST, MT, and LT trends are all pointing lower on the daily charts while the Weeklies speak for themselves – here’s the chart.

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

ASX INDEXES

After a ixed day in Asia – but one where China’s markets climbed off the mat – the ASX was down but off its lows Friday to close at 6,143. SPI traders have knocked 23 points off prices though and September futures sit at 6,108 15 points or so above important support.  

The ASX and SPI remain under pressure. What’s important though is that prices fought back from the lows Friday. Those lows need to hold to avoid another 100-150 point fall. In SPI terms 6,085/6,095 has to hold otherwise I'm targetting 6,041 and if that breaks it's 5,946. Of course the SPI is outside the edge of the Bolly BAnds which is a warning for a pause, but no guarantee. SO I'm watching my levels. 

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

A LITTLE ON THE ECONOMY

Just briefly this week we get some really important data points. Today we her from the RBA on the household sector. I expect they’ll be a little Panglossian as usual. But they do want to be a surce of confidence and stability don’t forget. Then tomorrow we get the NAB business survey, Wednesday is the Westpac consumer sentiment and Thursday its employment data. So by the end of this week we’ll have a good feel if last week’s Q2 GDP print is likely to be the right or wrong steer on the outlook for the Australian economy.

DATA:

Looking at the day ahead we are still waiting on President Trump’s next tranche of tariffs, while we get NZ manufacturing data, Japanese Q2 GDP (final), Chinese inflation and vehicle sales along with a speech - at 1.05 pm AEST - from Michele Bullock, RBA Assistant Governor (Financial System) on “ The Evolution of Household Sector Risks”. That might be worth a read folks given the outlook and falling house prices. Tonight it’s UK Q2 GDP, industrial production, and manufacturing data in an otherwise quiet evening of releases.

Have a great day's trading.

Greg McKenna

Chief Market Strategist

gregmckenna.com.au

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