Copper is down again this morning amid what’s been another day of falling prices across global metals markets. The Aussie US 2 and 10-year spreads likewise are also down again this morning with the 2-year spread at -4 points and the 10-year spread sitting at just ten and a half points.
Taken together those two factors alone are enough of a handbrake on the Aussie dollar and place downward pressure on prices.
So, it’s no surprise that the AUDUSD is lower this morning at 0.7574 having lost 0.23% but having found support at the 0.7550 region I highlighted yesterday.
The Aussie is also lower against the pound with GBPAUD up 0.77% to 1.7707, while EURAUD is also higher at 1.5647 – up 0.38%. The Aussie has lost less against the Yen and is relatively flat against the Kiwi which as part of the commodity bloc (yes, I know its export mix is very different to either Australia or Canada) is also under pressure.
For me though, perhaps the best example of why the Aussie is under pressure is the preference that global investors are showing in their sector allocations in stocks. To do this I use what I think is a neat non-forex indicator of what investors are doing. That indicator is simply a measure of the relative performance of the MSCI metals and mining index versus the MSCI’s world stock index.
It’s not a perfect measure by any stretch – but it is indicative of investor intent and attention. As mining and metals share underperform so often does the Aussie.
Which is where we are today with the Aussie under a little bit of pressure as traders await the release of the latest update of Private Capital Expenditure.
This is an important release for two reasons. The first is that what business invested in during Q3 feeds into that quarter’s GDP growth rate. The second is that the projections of what business will invest in over the next year are also important in judging the outlook for the economy.
The market is expecting Q3 CapEx to have increased 1% in the June quarter. The outlook for the rest of the 2017/18 financial year is also expected to lift although there are no forecasts for that via Reuters or other polls. This will be an important number as well.
So too will the release of China’s NBS PMI for manufacturing and non-manufacturing. Chinese data has been weak lately and the Citibank economic surprise index for the nation is currently sitting at -28.2. Any further deterioration will continue to weigh on metals, sentiment toward the Chinese economy, and thus the Australian dollar.
Turning to the charts now and not a lot has changed for the Aussie in the past 24 hours. Other than it has slipped to and found support at the 0.7550 region I highlighted yesterday would offer support if 0.7585 broke.
The daily chart tells you all you need to know. The AUDUSD is in a downtrend. It has recently failed three days in a row to break and hold above that trendline and so remains in a downtrend.
As it stands now the 0.7530 region – recent low – looks important. If it breaks the 0.7450 region comes into the frame.
Topside the Aussie would need to break 0.7610/20 and then 0.7645 to open up any substantial topside.
In other forex market developments, the GBP is still the big story. But in many ways for me, the big story is actually that we have a host of individual currency pairs trading on what seems like individual drivers rather than an overarching narrative. That means we can’t talk in terms of USD positive or negative in aggregate terms but need to drill down to the specific. Take the US 2-year bond spread with Australia and its impact on the Aussie dollar against the 2-year bond spread the US has with Germany and the EU and its LACK of impact on the Euro. Why the differing outcomes for the two pairs, AUDUSD and EURUSD? The answer is that like politics, it seems all forex is local these days and the Aussie has a very different place in investors’ portfolios and traders’ minds than does the Euro. It’s one of the reasons I do all the behavioural stuff – to understand the economic and then investment/trading fundamentals. Each pair has different drivers. Just something to think about.
Speaking of round trips have a look at USDCAD. I got stopped out of a short this week as the CAD lost ground on the back of oil’s weakness and I think some residual concerns about the outlook for growth after recent BoC comments. It’s broken and closed above two trendlines and can easily run back to the highs if the US tax bill is passed. But, if it doesn’t take out the recent high there is every chance I’ll be selling again in the next few days to a week.
The Kiwi is slipping as well. Its whole rally is at risk as it dips down and through the uptrend. I’m reminded of the price action in USDSGD recently which was very similar and saw the Sing continue to rise against the dollar until its recent stall in the mid 1.36 region.
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