Australia Today - A turn for local stocks and the Aussie dollar?

Market Analysis /
Greg McKenna / 11 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 dollar has underperformed the Euro and copper over recent days and sits at 0.7112 for a gain of 0.1%. Obviously, the Aussie has been hosed against the Pound and Euro which have made fresh 2 and 9 year closing highs respectively overnight.

The battler has underperformed the moves in copper and the Euro over the past few days as the sellers came for it and the buyers backed away. That’s not unusual in these types of markets. But if nothing else the stability in stocks, the hiatus in the fall in commodity prices, and the rally in the Euro and GBP (even if they look ephemeral) should give the Aussie some room to climb off the mat.

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

Likely that room for a bit of a move higher is only to get belted again. And that suggests the NAB business survey this morning could be more market moving that usual. I say that because with the jaundiced view investors and traders have toward growth and the Aussie dollar right now, with the concerns being expressed about housing and its impact on consumption this survey will offer a window into the rest of the economy in the current quarter, not last quarter where the solid GDP result sat. Something to watch this morning.

The downtrend is still clear – hence why I said the AUDUSD will likely encounter sellers again – but if it can hold above the 0.7090 region the Aussie may be able to mount a counter-trend rally. A move through 0.7130 would be suggestive that that had begun. Here’s the 4 hours.

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

ASX INDEXES

Looking at my charts and noting the relative resilience of the SPI it might be time for an ASX and SPI 200 rally. While above 6189 I’m targeting 6150 then 6190/6200.

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

A LITTLE ON THE ECONOMY

The RBA remains fairly sanguine about the outlook for the economy and for the level of debt being carried by Australian households.

RBA assistant Governor Michelle Bullock told an audience in Albury yesterday that while “in Australia, the household debt-to-income ratio has increased more than for many other countries” the reason for this was, “largely due to a rise in mortgage debt. And an important reason for the high level of mortgage debt in Australia is that the rental stock is mostly owned by households”. So households have more debt because they own both their own homes and investment properties.

A boon in the boom times, but likely a handbrake on consumption as the housing market and prices slide.

Bullock also said the high debt came with some vulnerabilities including, “that if there were an adverse shock to the economy, households could find themselves struggling to meet the repayments on these high levels of debt. If they have little savings, they might need to reduce consumption in order to meet loan repayments or, more extreme, sell their houses or default on their loans. This could have adverse effects on the real economy – for example, in the form of lower economic growth, higher unemployment and falling house prices – which could, in turn, amplify the negative shock”.

It would be my conjecture that it’s possible the linkage might run the other way too. Concerns about housing, or the switch from IO to P&I can cause a reduction in consumption which then causes the trouble Bullock highlights here.

DATA:

Looking at the day ahead the NAB business survey is the highlight for me because it will help give a steer as to whether worries about households are likely to impact growth materially. Tonight it’s UK unemployment, EU employment and ZEW economic sentiment survey while Germany has its version of the survey out as well. In the US it’s JOLTS and wholesale inventories.

Have a great day's trading.

Greg McKenna

Chief Market Strategist

gregmckenna.com.au

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