Aussie dollar under pressure from weak Chinese data and metal prices

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The Australian dollar came under heavy pressure from the Euro last night as EURAUD rallied around 1% to 1.5454. But it did better against the US dollar despite a combination of negatives which could have knocked the Aussie substantially down and through the 76 cent level.

That result against the USD, where the Aussie is up 0.12% on the day to 0.7630 this morning, was a result of a combination of the very strong NAB business survey yesterday and the US dollar’s own weakness.

Looking to the NAB survey and it’s easy to see why the RBA is so upbeat about business, investment, and that sector’s contribution to the economic outlook. Confidence was steady at 8 but reported conditions hit a record high of 21, while trading and profitability also rose sharply to 30 and 26 respectively. These are amazing numbers, ones that even the NAB doesn’t exactly fully trust with chief economist Alan Oster urging caution not champagne on the release.

Now, regular readers of my work know that the NAB business survey is for me the single most important data release in Australia each month. And on the basis of where it was last month, let alone the surge this month, and given employment is still firm at 7, this survey assuages my fears that consumers could turn inward and start focussing on debt reduction and thus pull consumption materially lower.

​​Australian consumer sentiment data

It’s a material risk. So, this morning’s consumer sentiment and wages data will be important in putting the puzzle that is this Australian economy right now together.

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For guidance, the last read on consumer sentiment from Westpac was 101.35 while the market is expecting a lift in wages from a 1.9% year-on-year pace to 2.2%.

It easy to see why the Aussie held in – at least against the USD – on the back of that NAB data. But the solidity of that performance – and why I cut my short term shorts this morning – is best judged by the weakness we saw in metals and iron ore in the hours since the triple treat of Chinese data was released yesterday.

Retail sales, industrial production, and urban investment were all a little weaker than expected. And it confirmed the recent slowing we have seen in Chinese data. Indeed the flow of Chinese data has been such recently that the Citibank Economic surprise index has drifted into negative territory in recent months and is currently sitting at -23.8 (In a double whammy for the Aussie dollar Australia is sitting at -22.1).

So you can see why copper dropped more than 1%, zinc lost 2%, nickel dipped close to 5% and iron ore was down between 2 and 4% – depending on which future you look at.

It really could have been much worse for the Aussie on this basis.

But support above 76 cents held firm. It’s not the strongest looking daily chart I’ve ever seen but if the Aussie can hold above 0.7595 on the day it may be able to rally back toward the 0.7660/80 region potentially all the way back to 77 cents.

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A break of support, however, would open up that move toward the low 75, high 74 cent region.

​​US dollar vs Euro

In other forex market developments, forex traders hate the dollar. Or at least they love the Euro. I think we can say that with some authority after the overnight price action which saw the Euro surge on the back of the better than expected German and solid EU data, and despite Mario Draghi’s implied ‘rates will be on hold forever’ comment on the value of forward guidance. That the Euro ran to a high of 1.18045 (currently 1.1791) despite the US PPI shot the lights out with a 0.4% print simply tells us that traders are focussed on the Euro side of that cross. Perhaps a beat in CPI tonight along the lines I’ve alluded to above might see the US dollar bulls return serve. But for the moment traders love the Euro and the US dollar has to fight for any affection.

Long Euro was not one of the trades I had on in the past couple of days although I was long EURAUD. But the move overnight was very solid as the chart below of EURUSD shows. !t looks a little overcooked short-term and 1.1840 needs to give way to kick it back into the mid 1.19 region.

And as for the commodity bloc as I highlighted above the US dollar weakness saved them from material weakness as a result of the cooling Chinese economy, big fall in metals prices, and weakness in oil. Indeed, I closed out a short AUDUSD this morning because it just didn’t go down hard enough yesterday showing support above 76 cents with the low at 0.7608. In no small measure that was a result of the very solid NAB business survey counterbalancing the weak Chinese data and impact on metals. We’ll see how it goes after this morning’s data but price would need to slip through 0.7595 to get the sellers excited again I think.

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For the CAD and the Kiwi, it has been an interesting day. The Kiwi was poll axed yesterday down below 6850 before recovering to 0.6880. But it still looks pressured. The CAD is interesting in so far as it bounced off the trendline but isn’t as weak as it was, or could have been, after oils big fall. US CPI tonight will be important.

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