The Aussie is demonstrating nascent signs of stabilization. COT data has finally flipped net long for the first since 2015. Jut today net retail positioning has moved decidedly bearish net 70+% short as we test range resistance. From a data perspective the decline in domestic data appears to be showing signs of stabilization as commodity prices also arrest from recent crashes. The confluence of evidence suggests it may be time to at least in the near term make a strategy shift in AUD/USD trading views.
Fundamental Flows
Austrilan GDP growth increased by 0.6% in Q4. This was above the recent bearish lowering of the consensus expectation that went from 0.6% late last week to 0.4% as of yesterday. The better Q4 result was sugar coated by the upgrading of the 0.9% Q3 GDP growth result to 1.1%. Consequently, yearly GDP growth leapt back to around trend at 3.0%, well above the market’s expected 2.5%. The better than expected result came from stronger household consumption, machinery and equipment investment, inventories and a smaller GDP deflator when compared to forecasts. The volatile component of farm GDP also contributed positively (+1.6%) after two quarters of negative growth. Overall, the expenditure mix was healthy.
Income growth still weak thanks to lower terms of trade. Nominal GDP rose only 0.4% in the quarter, with growth through 2015 up a meagre 2.4% reflecting the ongoing decline in the terms of trade. Annual growth in per capita income was up only 1.6%. Real income measures that adjust for the falling terms of trade are even weaker, although they overstate the squeeze on income. In particular, real household disposable incomes are supported by the strength of the labour market, and consumers have been able to dip into savings to underpin spending. And in another sign of rebalancing, profits rose for the second consecutive quarter despite falling earnings in resources.Productivity still missing. Productivity fell in Q4 reflecting the strong growth in hours worked and rose only 0.9% in the past year for the 16 sectors that productivity is directly measured. The weakness in productivity is one reason why household income is growing only slowly. But growth remains skewed. The reverse two speed economy continues with domestic final demand in WA and QLD suffering still from the hangover from mining investment and soft commodity prices. In contrast NSW and VIC are driving demand growth.The GDP data now better aligns with the stronger employment data in the second half of 2015. The data provides more evidence to support the strength in the employment numbers. That said, early indicators for Q1 have softened somewhat markets revised down growth forecasts in key trading partners recently, so growth may again dip slightly below 3%. Even so, growth is strong enough to keep the RBA on-hold.
Technical & Trading Takeaway
From a technical and trading perspective the Aussie is positioned in a similar structure to the Crude Oil chart we reviewed last week. We have a potential base developing. As with the Crude I am monitoring the price action looking for a base breakout and pullback to test former resistance as support, if this price pattern plays out I will be monitoring intra day reversal patterns to position for a broader correction/reversal.
As per the chart below if this move develops as anticipated there will be numerous trading opportunities which i will update over the coming weeks, first things first watch for the breakout.
