The AUDUSD chart has suddenly transitioned from boring, rangebound behaviour to a sudden avalanche to the downside on the break of the key range and semi-head and shoulders formation.
AUD testing below 0.9000
The next major targets are shaping up not far below 0.9000 now that the 200-day moving average has been punctured. Interesting to note that the AUD downside is vastly outpacing the latest action in EURUSD, where the action may be congealing a bit and where it is quite possible in a risk-averse environment that we see EURUSD relatively stable while the euro tracks the USD as it storms higher against the smaller currencies. Let’s have a look at the EURAUD chart and consider what this means.
Chart: EURAUD
A strong snapback from the post-European Central Bank meeting lows suggests that the downside action in EURAUD may be overdone in the near term. I suspect that we are seeing a bit of the euro’s negative correlation with risk appetite showing here as yesterday saw a rather weak session on Wall Street, though much of the action is due to AUD weakness.
I am biased for upside if risk appetite weakens further in the near term. 1.4000 could shape up as a major support if the action pauses, or the squeeze could continue unabated if we see a weak employment report out of Australia tonight.
AUD was weak on technical developments on the AUDUSD chart, but also on industrial metal weakness and a very ugly drop in the September consumer confidence overnight. Tonight’s August employment report out of Australia will be pivotal in setting the tone for the Aussie.
It is very interesting to note that the weak equity markets failed to do much to boost the JPY yesterday – this wasn’t much of a test for the old risk appetite/yen negative correlation as the magnitude of the sell-off was rather small, but I am watching for continuing signs that this relationship is weakening as a sign that the JPY will remain weak across the board.
Looking ahead
Watch for the Norway CPI report this morning – NOK is looking weaker, in line with many of the smaller currencies and could weaken further on a lower-than-expected reading and maybe regardless of the reading, as oil prices have limped sharply lower over the last several weeks, with Brent below 100 dollars/barrel. We’ve only seen one weekly close below 100 dollars since mid-2012.
Watch out for Scottish independence-related questioning as Bank of England governor Mark Carney and other monetary policy committee members will testify before a parliamentary committee today.
Tonight, the Reserve Bank of New Zealand will announce whether it will continue to raise the official cash rate, or OCR, after raising the rate after four 25-bp hikes this year. The market is not expecting a hike this time around after the heavy rhetorical intervention from Governor Graeme Wheeler in recent months.
This has helped the NZD sharply lower across the board, though over the last couple of days, the AUDNZD cross has been pounded for heavy losses as the Aussie has played a bit of catch-up. I would look for Wheeler and company to do everything to encourage a neutral rate view and a stiff rhetoric aimed at the exchange rate not spiking again now that it looks to have turn the corner. NZDUSD downside is likely to eventually resume after a possible bounce.
How long will the USD bull run continue?
We are in a new secular USD bull, and this run could continue in the nearest term into next week’s Federal Open Market Committee meeting, where the Fed will have to deliver a fairly hawkish statement and set of projections to avoid a bout of consolidation.
It’s tough for me to see anything beyond a slow adjustment in the language, though the hawks may be clamouring for attention with dissenting votes if the statement doesn’t move enough, or a shift higher in the median “dot plot” expectations could provide a bit more ammo for USD bulls.
Economic data highlights
- Japan Aug. PPI out at -0.2% MoM and +3.9% YoY vs. 0.0%/+4.1% expected, respectively and vs. +4.3% YoY in Jul.
- Japan Jul. Machine Orders out at +3.5% MoM and +1.1% YoY vs. +4.0%/_0.5% expected, respectively and vs. -3.0% YoY in Jun.
- Australia Sep. Westpac Consumer Confidence fell to 94.0 vs. 98.5 in Aug.
Upcoming Economic Calendar Highlights (all times GMT)
- Norway Aug. CPI (0800)
- UK Bank of England’s Carney and other MPC members before parliament (1345)
- Eurozone Bundesbank’s Buch to Speak (1400)
- Eurozone ECB’s Mersch to Speak (1500)
- New Zealand RBNZ official cash rate announcement (2100)
- New Zealand RBNZ Governor Wheeler news conference (2105)
- UK Aug. RICS House Price Balance (2301)
- China Aug. CPI/PPI (0130)
- Australia Aug. Employment Change and Unemployment Rate (0130)