Home / Blog / Market Analysis / Australia Today - The Aussie dollar is back below 74 cents, SPI traders punting on a better day for the ASX

Australia Today - The Aussie dollar is back below 74 cents, SPI traders punting on a better day for the ASX

Market Analysis /
Greg McKenna / 24 Jul 2018

Welcome to my Australia Today column where I'l have a look at some economics, the Aussie dollar, andthe outlook for the ASX200 and SPI. 

As every Feedback is welcome

 

THE AUSTRALIAN DOLLAR

Of the commodity bloc the Aussie dollar has done worse after being unable to break up and through last week high in the low 0.7440’s. AUDUSD made a higher around 0.7437, but it’s back at 0.7380 this morning for a loss of 0.5% as it’s caught between the Euro and the Yuan which hit 6.80 in USDCNY terms.

Watching trade yesterday it looked like the Aussie, among others, might not be able to break up and away in the manner that I had thought it might after Friday's price action.

In fact the AUDUSD has done poorly in the past 24 hours.

It couldn’t get up and through last week’s highs as it became clear traders decided to look through Trump and Mnuchin’s comments on China and the dollar. Equally, I guess that’s also because it became clear with the move in the USDCNH and CNY yesterday that China is still happy to let the currency weaken.

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

The injection of liquidity into the Chinese market yesterday was both a signal of that intent but also a signal that the economy needed stimulus. Both work against Yuan strength and reminded traders that their favourite Asia, commodity, and global growth proxy was above 74 cents and stalled below last week’s highs. Thus it’s natural for the buyers to step back and prices fall a little.  

The question now is what’s next.

And the easy answer, but also the right one at the moment is that like the Euro the AUDUSD is trapped in a range and waiting for the next shoe to drop. Australian data has improved and that’s a positive. But that fact has been lost in the maelstrom of the Chinese Yuan’s depreciation, copper’s struggles, metal and mining shares underperformance, and the machinations of the USD.

So like the Euro the AUDUSD is simply mapping out a range at the moment with 73 cents on the low side and 0.7480/90 on the top side. Will tomorrow’s CPI be a catalyst for a break? Or will we wait till we see the actual print of US Q2 GDP Friday? I’m not sure.

On the day though the levels I’m watching are 0.7357 on the low side and 0.7390 and then 0.7414 topside.

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

ASX INDEXES

It was a sea of red on the ASX 200 yesterday with the index closing down 0.8% for a 55 point loss. The close at 6,231 is still among the highest for a decade. But coming after Friday’s retest and rejection of the recent highs it’s another confirmation that the local market might be having valuation issues up here without further gains from the US and other markets. Of course the S&P’s little move higher and Alphabet’s decent beat after the bell will help sentiment. But yesterday’s fall will have brutalised the bulls.

But after that big fall yesterday on the ASX SPI traders have added back 21 points of the 58 point loss yesterday. as you can see in this daily SPI chart the current uptrend channel has held. 6,160 and then 6,145 are the key levels of support. Resistance is 6,191 and 6,202.

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

A LITTLE ON THE ECONOMY

Federal Treasurer Scott Morrison looked like he was enjoying the G20 when he spoke to reporters on the sidelines of the meeting. He reiterated a widely held view that there is no impact of the trade dispute on global or Australian growth. He also had his rose coloured glasses on, maybe even two pairs at once saying, “ I think the way people have responded at the G20 has been to take the temperature down. I think that’s welcome”. I’d agree if it’s true and if we see evidence of it. Unfortuntaely though a globalist like US Treasury Secretary Mnuchin still felt the need the need to pop Europe and we know the President is ready to pop China if they don’t start to give some decent concessions. 

ScoMo said, “the biggest outcome at the moment is to sentiment and uncertainty, as opposed to structural changes to what’s happening with trade.  Where there are specific measures impacting, obviously they’ll have specific impacts, but in the scheme of things they are still very small scale”. Yet the communique he was part of warned of “heightened trade and political tensions”. Indeed the SMH reported yesterday that like Australia’s central bank Morrison told the economic session of the G20 catch up “we have to be careful that we don’t scare the hell out of people about what is going on in terms of trade tensions…It is very alarming to our citizens. They look to meetings like this hoping that they will see there is a way forward that doesn’t have that sort of apocalyptic end that they fear will happen as a result of these sorts of trade tensions being escalated”. Yet that seems exactly what the US administration seems to want to deliver the world.

The Australian economy is doing okay right now. But consumer and business confidence is a fragile thing. And there’s nothing like the escalation of the trade war into a full blown conflagration to sap confidence and forestall business investment and household consumption. Lets hope ScoMo saying that he “left it (G20 summit) more optimistic than [when] I arrived…based on an acknowledgement of the need to resolve these issue, there is now a sense of urgency”. Lets hope they can sort things out because if not Australia and the rest of the world are likely to be looking at a lower growth forecast than currently forecast. And that has serious consequences for rates, forex, and stocks.

DATA:

On the day today it’s “flash” PMI day with releases in Japan, across Europe and the US giving a window into the “official” figure which will be released early next month. Other than that it’s the Richmond Fed index in the US as the other semi-interesting datapoint.

Have a great day's trading.

Greg McKenna

Chief Market Strategist

gregmckenna.com.au

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