The AUDSGD Rate Could Signal A Change Of Fortune For The US Dollar
Axi | Oct 25, 2016 11:45
Originally published by AxiTrader h2 Quick Recap/h2
The AUD/USD rallied back into the 0.7640 region in the past 24 hours before being knocked back to sit roughly unchanged around 76 cents this morning. That suggests again that traders are fairly comfortable playing either side of this 0.7450/0.7750 range for the moment.
Naturally that could all change tomorrow with the release of the third quarter CPI - but only if it is an incredibly weak number that undermines support for the Aussie.
On the crosses things are a little more interesting. GBP/AUD looks like it is consolidating and could turn higher. AUD/JPY is poised, AUD/NZD is pushing a little higher again, and EUR/AUD looks like it may also be consolidating for a turn. That, and the outlook for USD/SGD and AUD/SGD suggests the US dollar's run may also need a hiatus.
h2 What You Need To Know/h2The past 24 hours have been fairly boring for the majors - unless you like really tight ranges and not a lot of movement.
So I won't over egg things for the purpose of this morning's post.
Rather I'd like to share something I've been watching as a key indicator of the US dollar's strength recently. That something is the relationship between Dollar Sing, Aussie Sing, and the US dollar index.
For me the USDSGD rate is the developed markets emerging market. It's a good indicator of traders attitudes toward Asia as well as having its own economic and MAS influences. Recently it has weakened as the Singaporean GDP disappointed but as you can see in the chart below the Singaporean dollar (purple line) moves nicely with the USD index (blue line) which in turn moves nicely with the AUDSGD rate (green line).
This co-movement is understandable if you believe that the Sing Dollar and Aussie Sing should move with the US dollar index. I'm not convinced of the natural logic but I can see the directional correlation over a very long period.
But even as I try to untwist the logic (yes we could easily say that the USD drives USDSGD, but why does the USD drive AUDSGD and not the Aussie side of the cross) the price action on USDSGD, the DXY, and AUDSGD (and perhaps the Euro) in the past few days suggests that we could be in for a turn in the USD in the coming week.
Each of these suggests an interim top may be in place. Indeed the AUDSGD rate looks set to head back toward 1.04 from the current 1.0589.
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But it also suggests that a benign to strong outcome for Austalian Q3 CPI - 0.5% or higher could see the Aussie dollar lift as well.
Have a great day's trading
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