The Aussie dollar is lower this morning sitting around 0.7560 after a convergence of weaker than expected GDP data, a stronger US dollar, weaker metals prices, a fall in iron ore, and the still negative 2-year bond spread with the US all weighed on sentiment.
Indeed, save for an all-out collapse in global stocks, it is hard to envisage a worse 24-hours of fundamental news for the Australian dollar than we have seen in the past day.
So on that basis, I could easily take a glass half full approach and say the fact the Aussie still held support around this 0.7560 – 0.7559 low – is positive when I consider the negatives.
Sure, a half a percent fall in 24 hours is a decent one in forex land. But with the coincidence of these negatives, things could have been – may become – much worse for the Aussie dollar. Indeed, as I wrote earlier yesterday’s 0.6% print for Australia’s Q3 GDP (which took it a 2.8% year over year pace) was a not terrible but pessimist empowering result.
I say that because the weakness in HCFE, which was the lowest since Q2 2005, keeps the debate about the potentially destabilising impact of household retrenchment on the economy going. That, in turn, keeps discussions about the RBA outlook ongoing and that keeps the focus on the negative bond spread discussion.
So, I don’t actually think a loss of half a percent is too bad given this confluence of negatives.
But the day ahead is not without risks for the AUDUSD.
That’s because the monthly release of the trade data has again become a market mover over the past year or so. The market is looking for another stonkingly good surplus of $1.375 billion for the month of October after last month’s stellar $1.745 billion surplus. At these levels though there is a certain asymmetry to the risk where a lower surplus print could garner a bigger reaction than a beat.
We’ll know at 11.30am today.
Looking at the charts then and with the AUDUSD here at 0.7560 it is right on the previous downtrend it broke up and through late last week. The rally and subsequent reversal have been truly awful in price action terms.
On the day ahead there will be support in this 0.7550/60 zone but it is clear that the real level to watch is the low of the recent downtrend from 81 cents at 0.7531. If that breaks then the next target would be the 0.7450 region which is where the trendline from the 2015 lows comes in. Obviously, 0.7530 has to break first though.
Topside 76 cents then 0.7640/50 looks like resistance.
In other forex land news, an interesting night with the US dollar stronger against the Euro, Pound, Aussie, and CAD but weaker against the Yen which seems to have benefitted from this little risk-off tone in global stock markets over the past day. As I highlighted yesterday I was one of only 2% of respondents who thought Euro could end the month substantially lower – under 1.16. Most respondents thought EURUSD would end in the 1.18/1.20 region. That’s of course possible. But with the US Fed next week likely to have to address the impact of tax cuts on growth and its policy response, the chances are that Euro comes under some selling pressure.
GBPUSD has lost 50 of the first 100 points I highlighted it could lose yesterday. The slipping Brexit negotiations are weighing on sentiment and GBPUSD is approaching an important trendline support which sits around 1.3300/15. If that breaks the Pound could really capitulate.
Looking at the commodity bloc it’s clear that traders don’t believe the Bank of Canada (BoC) when it says that rates will need to rise again – indeed I’ve read some research which says they’ll need to reverse course next year. I say that because even after the BoC statements the CAD is down 0.8% with USDCAD up at 1.2790 – oil didn’t help. The Kiwi’s recent outperformance among the group continues with NZDUSD flat at 6874.
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