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Viewing entries tagged with 'RBA'
Chart of interest - AUD/EUR (the sleeper trade of 2013?)
Hi all
This is one of my dead set favourite trades.
Since the onset of the GFC the Australian dollar has appreciated against the EUR, almost doubling in value as the market sought refuge from the beleaguered EuroZone and finding haven in the high yield, proxy to China growth, AAA rated Australian dollar. What an incredible run.
AUDEUR – click here to view chart
However late last year things began to change with the Troika providing enough funds, and therefore time, for the EuroZone politicians to make the required fiscal changes i.e. labour market, pension reform etc. Meanwhile the RBA forecast an earlier peak in mining investment and resumed cutting rates.
It is my belief that the NZD and AUD currencies are vulnerable to their own success of the last few years (the cure for a high currency is a high currency – eventually it’ll hurt). I think too that Eurozone data will surprise to the topside in as much as it surely can’t get worse.
Technically the picture looks intriguing. We had the ‘head and shoulders’ break down below the neckline and then, as so often happens the retest. Now we look likely to resume the move that should head towards 0.7000
AUDEUR a closer look – click here to view chart
Cheers G.
The USD Super Cycle
All
The USD Index has fallen from 121 in 2001 to currently sit at 80 (has been as low as 71 at the height of the GFC 2008).
Essentially the FED’s policies since the GFC have been aimed at devaluing their way to prosperity. Remember when they had a ‘strong dollar policy’ that was quoted by officials at every chance ? That’s right, we haven’t heard that one for a very long time!
I have long maintained that this super cycle won’t end until the rest of the world cries out “Hey, you can’t devalue your way to prosperity at the expense of the rest of us”.
That will likely require an accord of some sort like we’ve seen in the past, see ‘Louvre Accord’ 1987 – halting the decline of the USD http://en.wikipedia.org/wiki/Louvre_Accord and the ‘Plaza Accord’ also 1987 – http://en.wikipedia.org/wiki/Plaza_Accord .
Already we have heard increasingly strained complaints from the likes of the outgoing RBNZ Gov. Bollard, the RBA and the BoE. This I’d suspect is only the beginning and the howls of anguish are only likely to get louder before this super cycle is finished. Unfortunately for our little export orientated economy that probably means coping with a much higher NZD/USD, and worryingly a higher NZD/AUD which recently has served as a bit of a circuit breaker for us.
Looking at the USD Index, the price action since the onset of the GFC simply looks like a consolidation and today’s FED announcement has every chance of propelling the USD down and out of the multi-year triangle consolidation.
NZD/USD at 0.9500 anyone ?
G.
China - are Chinese stocks now super cheap?
All
China growth this year is forecast to slip to about 7.7% before bouncing back into the 8% range next year depending on who you listen to, rates of growth that are just incredible for anywhere else in the world.(see…IMF Forecasts China Real GDP To Grow 7.8% in 2012, 8.2% in 2013. The World Bank forecasts growth in China’s economy this year is 7.7 per cent, and rebound in 2013 to 8.1 per cent.)
The RBA, who have about as much skin in the China game as anyone, continue to see demand from China staying (relatively) strong for another decade. As such the recent weakness in China related commodities is likely to have been largely an inventory cleanout rather than the end of an era.
Further, the Chinese authorities are already deploying substantial stimulus measures and have vast resources at their disposal in the form of $3 trillion plus in FX reserves.
Chinese stocks have been falling since the Shanghai Composite Index topped out at 6000 around 5 years ago. Today, Chinese equities are the cheapest in 15 years on an inflation adjusted basis.
Technically there is massive ‘bullish divergence’ on the medium term charts with the run down over the last 6 months not confirmed by the MACD momentum studies.
Fig 1 – Note the clear bullish divergence of the MACD momentum indicator
China Stocks – click here to view chart
Fig 2 – a Longer term perspective. China has been growing at 8-11% for the last 5 years and their stock market is 1/3rd of the price it was. Really?
China Stocks a longer term perspective – click here to view chart
There are numerous ways of capturing the China story via your BBY Online platform from individual companies lasted on various exhanges around the world to ETF’s that look to replicate/exceed the main index.
Regards G.
NZD/AUD - Time to buy again?
All
There is no doubt that world growth is slowing and early indications are that China too is slowing at a much faster rate than has previously been anticipated.
In this environment, the one currency that looks the most vulnerable to me, is the Australian Dollar (AUD). Over the last 4 years the Aussie has been a huge beneficiary of major investment flows given it’s relatively high yield, its position as a proxy for Chinese growth and its AAA sovereign rating. The ‘long’ positions must be enormous.
In November the RBA started cutting interest rates. To date they have cut a full 1% off the cash rate from 4.75% to 3.75%. During this time the RBA have remained relatively upbeat stating that although the economy was clearly ‘two speed’ (East Coast retail, finance and housing industries very weak – West/North mining booming) the spend from on-going mining investment (capex) would hold the economy in good stead. However, in the last speech on record, the RBA noted that the flow through from mining hadn’t supported the economy quite as much as they expected. Hot on the heels of that significant statement the giant corporate BHP advised that their proposed $80 billion capex program was to be pared back as they saw demand for their products waning. Not good, the last bastion of Aussie growth being undermined (pun intended).
Thus more rate cuts look likely in Australia over time. Contrastingly, whilst the data out of New Zealand has been soft of late, the hurdle to a RBNZ rate cut from the already ‘emergency’ setting of 2.5% looks very high. The likely fillip from the Canterbury situation certainly a major factor in that view. The NZD/AUD is historically very sensitive to a narrowing interest differentials. And this cross is a nice diversification away from pure AUD/USD if you’re already on that trend lower.
Technically the chart looks supportive of this view. The uptrend line off the ‘double bottom’ low of late last year looks to have held nicely this week.
NZDAUD – Click here to view chart
Cheers G.
GBP/AUD - Divergent Central Banks
Hi all
The minutes from both the RBA and the BOE have been released this week and the circumstances of the two central bank are startlingly different.
The RBA stated “a case could be made for further easing” and clearly identified the Q1 inflation data due on the 24th as a likely catalyst for such action. The market expects an outcome close to the bottom of the RBA’s 2-3% inflation band whereas only 2 quarters ago the rate was above the top of the band.
The BOE in contrast admitted “ inflation was not falling as quickly as policymakers had hoped” and that“inflation could stay above 3pc into the second half of this year”
With the range bound nature of the USD pairs this divergence in central bank expectations makes this a lovely diversification trade.
A look at the charts is very enlightening. The pattern in GBP/AUD terms is what in classical charting is called a ‘cup and saucer’. In effect what you are looking at is a tea cup with handle. I don’t think I can recall ever seeing one so perfect.
GBPAUD – click here to view chart
Now for a bit of perspective this is happening at the (potential) end of a massive 10 year range making this a great trade for the value investor.
GBPAUD 10 Year Range – click here to view chart
Identifying trades is only one part towards the successful business of trading. Call in to discuss strategies and position sizing to benefit from this circumstance.
Regards Graham
