Aussie Dollar back above 92 cents and headed higher, USDJPY pressured

September 9, 2013

Markets in Australia are going to like the Abbott victory it seems as hope turns to expectation.

The Australian dollar is already rallying and should get a further lift and the ASX particularly those sectors affected by coalition promises will get a fillip this morning as well. Interest rate markets might even like it if Austerity Abbott style reduces the chances of the RBA rate hikes which are currently being priced into markets may not eventuate. On the Sydney Futures Exchange (SFE) the SPI200 contract closed at 5157 on Saturday morning up 12 on the Friday’s close.

I like the Aussie higher

The pressure on the Aussie to go higher has been growing after the 88/89 region has held fast for the past few weeks. With Chinese data over the weekend showing more momentum toward growth and with the ANZ and others now looking for improved GDP data once more the path of least resistance seems to be up for the moment.

What has happened technically is very clear – the Aussie is in a big old downtrend but has found support and will now rally until the sellers come back in. First step is to climb over 0.9230/50 which is likely today and then its 0.9350 which could fuel a speculative reversal from near record shorts on the CFTC (see this weeks positioning report here) and a run into the 95-96 region.

What has happened fundamentally with the economy is that the dichotomy has continued. Weak business sentiment and retail sales have continued but our external drivers such as China and global growth have improved. Indeed Chinese export data released yesterday that showed an increase in August of 7.2% year on year versus 6% expected. The ANZ said in a note to clients that this data is, “pointing to an upside bias in Q3 GDP growth.” 

The incoming government will probably render the weak data in the pipeline such as the NAB survey this week moot as the Government’s honeymoon begins.

As you can see in the above chart the Aussie fell heavily on the back of a weakening data flow from the Brics – it was both a proxy for BRIC selling and a natural recipient of poor sentiment as a result. But as the Aussie has bottomed the BRIC data flow has improved – materially.

It all adds up to an Aussie dollar that is headed higher.

Looking back on Friday the non-farm payrolls data in the US missed by 11,000 printing 169,000 versus the 180,000 expected with revisions to the last 2 months shaving more than 70,000 jobs from the data. Unemployment ticked down to 7.3% from 7.4% as people left the workforce. Disappointing data on the face of it but an 11,000 miss in an economy the size of the US is just statistical noise. Stocks reacted badly to the jobs data falling right out of bed but recovered to finish largely unchanged with the Dow up 0.10% and the S&P flat at 1655. The Nasdaq was 0.03% higher.

In Europe it was green across the board with the FTSE up 0.22%, the DAX in Germany up 0.5%, the CAC rose 1.05% while stocks in Milan and Madrid were 1.21% and 1.23% respectively higher.
ON FX markets the weaker than expected US jobless data knocked the US dollar heavily against the Yen with a huge reversals from above 100 to a low of 88.46 before finishing at 99.07. The Euro (1.3174) and GBP (1.5625) were both higher as well.

Looking quickly at the Yen the USD retook the 100 level against the Yen last week but on Friday its colours were lowered after the non-farm payrolls missed. It was an interesting trade day as you can see with a big outside candle which found support at my slow moving averages around the low of 88.46 – but where to now?

Price action, the type of which we saw Friday night is hard to come back from and when I look at the 4 hour chart rather than the daily above it looks like USDJPY is heading lower. My guess is it is biased back to the Friday low around 88.46 with massive support and the old trendline at 88.20. If that breaks then USDJPY is going substantially lower and all of those Yen shorts might find themselves under a little pressure.

On Commodity markets Crude was up 1.99% to $110.23, Gold bounced off an incredibly weak period which drove it into the $1360’s after Russian President Vladimir Putin said that while he didn’t want to dragged into a bigger conflict Russia was and would continue to support the Syrian regime. News is breaking this morning that Assad has denied using chemical weapons on Charlie Rose and the pressure is building on President Obama as he continues to lose ground in Congress if reports are accurate.

On the data front today we get Kiwi manufacturing sales, Japanese GDP, ANZ job ads and home loans in Australia as well as Chinese CPI data. Sentix Investor confidence in the EU but nothing of note in the US.

It is going to be an interesting week with US lawmakers back from the Summer Break and likely to vote Wednesday on the Syrian issue and the Fed’s next FOMC meeting with the taper attached less than 2 weeks away now. Might be a week for traders to don the Tin hats. But first here in Australia it is likely to be a good day for stocks.

Good hunting and have a great day

Greg

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