All Quiet On The Australian Dollar Front
Axi | Jun 14, 2017 12:05
Originally published by AxiTrader
The Australian dollar is largely unchanged over the past 24 hours after trading either side of its current very quiet range with a high at 0.7564 and low around 0.7521.
Those parameters are neatly summarised by last week's high on the topside and the 200-day moving average and recent resistance, now support, in the 0.7515/20 region.
Yesterday's release of another solid NAB business survey and the general increase in the level of risk appetite we've seen from the big stock market rally in Australia and offshore last night would usually have been expected to help the Australian dollar higher.
That it has not tells an interesting story of a still bearish bias that traders and investors seem to hold for the Australian dollar.
And it's not just about Australia it seems.
If you draw a line from the latest Bank of America Merrill Lynch (NYSE:BAC) survey of big institutional investors around the globe you can see in the responses that investors have become more concerned about the kind of drivers that usually impact the Aussie.
MNI reported overnight that "China credit tightening" is the key tail risk. But it's the run of the mill risks that are probably more instructive. The percentage of global managers overweight stocks dropped 5% to 40% the latest survey showed while 58% are net underweight bonds.
That tells you that these managers see rates as rising which, given the RBA's neutral policy stance, could lead to spread compression between Australian and other bond markets. Especially the US which we have seen recently.
Clearly, if bond spreads were the only driver the Aussie would be substantially lower.
But currencies are complicated beasts with myriad drivers. That said though the BAML survey also suggests some further reasons the Aussie might be constrained right now.
A net 15% of managers were underweight commodities in June against just net 3% in May. That's the biggest fall since June 2010. That - along with worries about China and just 7% of managers who say the US dollar is over valued - speaks to why the Aussie has been supported on dips under 74 cents but hasn't been able to run on even though the data flow is not terrible as the NAB survey showed again yesterday
So it's caught. Close to a break higher but unable to get their just yet.
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Before I get to the chart and the technical outlook let me quickly touch on the business survey and what I said in my overnight wrap earlier;
"While it (confidence and conditions) dipped a little from last month it still paints a picture of an economy that is doing pretty well...Confidence and conditions remain well above long-run averages.
This survey is for me the most important data release in Australia each month. It Trumps everything when it comes to sending the information we need about the state and outlook of the economy. So I’m encouraged. This is a salve to my worries about household debt and consumption."
We'll see how the data flows over the next month. Maybe Australia has to once again prove the doomsayers and handwringers wrong to get the buyers back.
On the technicals, it's pretty simple really over the short term. A break of 0.7566 opens the way to 76 cents and then 0.7640. On the downside it's 0.7515/20, then 0.7490/92, and 0.7470.
Of course the release of the FOMC decision, statement, and chair yellen's press conference are going to be key events for the Aussie over the next 24 hours.
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