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Aussie Dollar Rolling Over from Highs-Is there More to Go?
Submitted by Ralph Shell
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11:11 三月 14 2012
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3314 Views |
3 Comments
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 (3 Votes)
Early today, the Australian Dollar sold off taking the market down to 1.0423, the lowest trade since January 24th 2012. The market has staged a minor recovery, working its way back to the 1.0510 area.
For almost five weeks the A$ traded around the 1.08 handle, but was unable to mount an assault on the old highs in the 1.1070 area. During this five week period, the speculator was busy building a long position in futures and options, according to the COT Reports. The long spec position, according to the 02-28 report was almost 92K contracts, and remained at 71K contracts in the most recent report. Lacking specific bearish Aussie news, the market today acts like some of these longs are exiting the market.
Following the financial panic in late 2008, when the Australian Dollar fell to .6006, the market turned around and rallied to an all time high of 1.1079 in July 2011. Demand for Australian commodities, iron ore, coal, gold, and other metals from Australia's Asian neighbors instigated a commodity boom.
Despite the global recession, Australia was largely untouched. As the Chinese money poured in, the A$ firmed and the Central Banker began a series of rate increases. Then, with much of the developed world using easy money, attempting to stimulate a recovery, Australia became a preferred destination for carry trade hot money.
Ft.com/alphaville had an interesting story, The great Australian bond run:
"We noted a while back that Australia was facing a serious
problem in its bond markets. In short, the country seems to be running
out of public government debt.
There isn’t anywhere near enough to satisfy demand.....Much of the crowding out of the Australian bond market is down to hot
money inflows from abroad. Foreign ownership of Australian government
bonds now stands at 80.4 per cent of the market – a record amount."
For Australia, the strong currency is a mixed blessing. While demand for Australia's commodities has remained strong, the strong currency has hindered exports from the manufacturing sector, and slowed tourist trips to Australia.
Confronted with some economic headwinds, the Reserve Bank of Australia, did commence reducing interest rates, but chose to keep the rate unchanged at 4.25% at their meeting March 6th. On the following day, the GDP Q/Q report came in at a positive 0.4%, but well below the expected rate of 0.7%. The next rate meeting is April 3rd when a .25% reduction will be anticipated.
Another reduction in the bank rate is not a major worry, but the status of the Chinese economy is, since they are the largest importers from Australia. Today a Bloomberg report, expressed a strong negative opinion.
"China's economy is already in a so- called “hard landing,” according to Adrian Mowat, JPMorgan Chase & Co.’s chief Asian and emerging-market strategist.
“If you look at the Chinese data, you should stop debating about a hard landing,” Mowat, who is based in Hong Kong, said at a conference in Singapore yesterday. “China is in a hard landing. Car sales are down, cement production is down, steel production is down, construction stocks are down. It’s not a debate anymore, it’s a fact.” His team was a runner-up for best Asian equity strategists in a 2011 Institutional Investor magazine poll.
The Shanghai Composite Index fell 2.6 percent yesterday, the most since Nov. 30, after Premier Wen Jiabao said home prices are still “far from a reasonable level.” His comments fueled concern the government will maintain restrictions on the property market for an extended period even as the curbs threaten to slow economic growth."
As mentioned earlier, the COT reports reveal the specs have been big longs in the Aussie. We suspect that part of the sell off has been long liquidation, but might there not be more to come? And more bearish news/views, coming from China would intensify such a move.
We do note the MACD is flirting with a bearish crossover. The market acts like it wants to work lower. With a little bear news, perhaps this will trade below parity with the USD. As always, watch your stops.
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Author Bios
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Ralph Shell: Ralph did his graduate studies in economics and history at Duke University. He has ten years experience trading cash commodities in domestic and export markets and is a former commodity analyst with Merrill Lynch in Chicago. He was a member of and floor trader at the Chicago Board of Trade for 18 years.
Forex Captain: The Forex Captain has been a strategy developer and forex trader since 1998. From 2002 till 2009 he ran a successful managed account based on his tradestation coded strategies at FXCM. In 2007 his managed fund was ranked in BarclayHedge Rankings as one of the Top 10 Currency Traders managing less than $10M & more than $1M. Since 2009 he has been developing Expert Advisors in MQL4 for private trading, and from June 2010 he has joined the Project Triumph team as a currency analyst and project manager.
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