The Australian Dollar should break higher as risk appetite jumps

September 11, 2013

I’ll briefly touch on the overnight news and then I want to talk about the Aussie dollar and the chances that it breaks decisively up and through this 93.50 level and rund all the way to the 96 cent region.

Overnight the Syrian tensions receded further as the move toward a diplomatic solution with regard to the weapons stockpile sponsored by the Russians seems to gain traction. The impact of this was to knock gold and oil lower, push interest rates in the US, at home and around the world higher and give a bit of a turbo charge to the stock markets recent rally.

Adding to this though was that yesterday Chinese data showed better than expected Retail sales (13.4% yoy), Industrial Production (10.4% yoy) and Urban Investment (20.3% yoy) which really got things moving with the Nikkei and Shanghai exchanges up more than 1% and the Sensex in India up more that 3% after better trade data on the sub continent.

US and European stocks were stronger as a result and the Dow finished up 0.85% for a gain of 128 points, the Nasdaq rose 0.62% and the S&P bounced another 12 points or 0.74% to 1684.

But as noted above the good news is bad news though if you are long gold or Crude which fell 1.65% and 1.98% respectively. US rates didn’t like it either rising back toward 3% but it was 10 year Bunds that caught my eye rising above 2% for the first time since March 2012 closing at 2.03%.

On Forex markets the Aussie dollar  is the standout over night up 0.94% after the Chinese and Indian data and the overall improvement in risk appetite. The Yen (USDJPY, 100.32) was weaker as the fear bid came out of the market while the Euro and GBP were marginally stronger at 1.3267 and 1.5732 respectively.

On the data front today we have Korean exports and unemployment, Japanese BSI large manufacturing survey, Westpac Consumer Confidence in Australia before French employment, German CPI, UK employment and Mortgage Apps in the US.

Aussie Dollar Closing in on super resistance

The Australian dollar has failed multiple times over the past few months trying to get back above the 93.50 cent level but this time could be different. As I wrote yesterday the Aussie was climbing a wall of worry and as a result there was truly only me and a few lunatics who thought it was going higher.

Yesterday we got a move up on the back of a NAB Business survey which showed that confidence ripped higher but it was the Chinese data along I believe with the Indian data (Sensex up more than 3%) and improving investor sentiment which has taken the Aussie to the top of its range.

The BRIC’s data flow has already improved enough for the Aussie to break 93.50 – indeed its probably strong enough for it to be up at 95 or 96 cents based on the chart below. which shows the AUDUSD versus the Citibank BRIC’s economic surprise index.

The fundamentals are aligning  for the AUD and we know that positioning is still skewed with more than 71,500 short positions as at last week.

So the ammunition for a run higher exists – it just has to break resistance at 93.50 an then its 96 cents with a bullet.

Have a great day

Greg

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