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
A LITTLE ON THE ECONOMY
The RBA minutes are out today. It would be a surprise if there was anything surprising in them. But, to a certain extent at least, I'm still intrigued by that sentence at the end of the minutes a few months back when the RBA said it needed to be a source of stability and confidence.
Did it suggest that the commentariat were getting too bearish on the outlook relative to what the RBA was saying or was it a reflection of the RBA's own concerns and the recognition that if they talk positively folks might buy into the argument? I don't know the answer. But it has put me on notice to pore carefully over the minutes each month to see where the RBA's head is at.
Were the minutes written today it's likely the RBA would be pretty happy. Business conditions and confidence may have peaked but they still look pretty solid. Likewise, the big leap in consumer sentiment as picked up in the Westpac survey is an encouraging sign as we head toward the end of the year and the all-important Christmas shopping season.
But it's also clear the out of cycle interest rate rises from the banks, the fall in auction clearance rates, and the drop in housing prices will also have an impact on the outlook for the domestic economy. The question is just how much.
Time will tell.
THE AUSTRALIAN DOLLAR
The Aussie is largely unchanged at 0.7417 after rallying up to ~0.7441 at one point when the USD was weak. It’s still the case that the short-term moves are driven by the USD and Euro though the AUDUSD does look extended against copper which dipped 0.3% to $2.76 a pound overnight.
The reality is at present there is nothing to recommend the Australian dollar right now except USD weakness.
Don’t get me wrong that’s as important a driver as any other of the “Big 5” I watch. And right now with the economic data flow from other regions having improved, with folks worried about the outlook for US growth, and feeling disquiet over the trade war – and probably President Trump again – the USD is under a little pressure.
Should that pressure intensify the Aussie will run higher - toward 0.7470, perhaps 75 cents or more.
But the reality is the outlook for global and Chinese growth, the headwinds here at home – even though the economy does look okay right now – and the changed expectations about commodity prices are all still weighing on the AUDUSD.
So the weekly downtrend continues. It’s just a question of how high the Aussie runs, if it does, before the seller reemerge. I’m on board with USDCNY at 6.80, then 6.9, and likely 7.0 over the next 6 months. So that will likely drag the AUDUSD lower too.
On the day the levels I’m watching are 0.7400/03 and 0.7372/83 on the downside and 0.7425, 32, and 45/50 topside.
Fed chair Jay Powell's discussion up on Capitol Hill tonight is likely to be a very important driver for the USD and forex markets in general. So watch that space.
Yesterday I said I thought the ASX 200 and the SPI looked tired.But this is not a rally to fight until a signal is given and today may be that day.
The miners are down again overnight, China’s data was in line with expectations but so much so it was more questionable than usual, and there is continued chatter about the banks and their outlook as house prices fall and demand for debt goes with it.
I keep saying, when asked by the press, that we are a point of valuation exhaustion. That doesn’t mean selling necessarily. But, as Tom Demark is want to say, it’s the absence of buyers that threaten a rally. Then the Sellers come in.
So both the SPI and the ASX200 look vulnerable to further falls, both fundamentally and technically. Here’s the ASX200 via out cash CFD chart. It looks like it’s about to go. A break of the 6,212/15 region would confirm on the physical (cash). Then we’d be heading into the 6146/58 region I highlighted last week.
On the SPI the levels to watch are 6,168 then 6,145.
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