Australian dollar – running on empty
Posted on 07 March 2011
The Aussie has burnt through its stores of glycogen and has been battling against the wall for a month or two now – any progress from here is likely to take a whole lot more effort. That’s not to say it can’t make one final push higher. It is to say that the risk/reward is heavily favouring the downside over the balance of the calendar year. (For Jan 25 comment click here)
But first speaking for the optimists, leveraged accounts have returned to the Aussie over recent weeks – though not in sufficient numbers to return open interest to March 2010 levels:
Considering that the AUDUSD exchange rate is bumping up against its recent highs, the relative lack of volume might possibly suggest that we are about to enjoy a capitulation spike higher that sees volume also make new highs. More probably, the relative decline in volume is a sign of failing enthusiasm for the commodity trade – something that is clearer when looking at the total futures volumes:
This same lack of conviction is even more evident in the aggregate spot and forward currency flows against all currencies. By way of illustration, we use a money flow index, that combines volume with price, to gauge the relative strength of the currency. Note the divergence between the index and price that has been unfolding for months now. At the very least we can conclude that today’s price action is very different from that of March 2010.
Putting this into a mean reversion context, the current AUDUSD price looks pretty stretched and due for an pullback to at least the 0.90/0.91 level.
Chances are that the risk trade is losing steam as we head into the end of QE2. It’ll be interesting to see how the Aussie holds up. Historically, a cross of the moving average convergence/divergence on a monthly basis has been a reasonable signal for a change of trend. Remind me to check if we trade through 0.9000…
6 responses to Australian dollar – running on empty
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Excellent technical view Rohan. Can you layer a fundamental view on top to support the technicals?
Perhaps rising US interest rates?
Hiccup in China?
Purchasing power parity to far out or whack? Let’s ditch the Big Mac index and start an Amazon best seller index.
Funds moving away from speculation to undervalued US large caps?
My view is the most likely reason for a pull back is a grey/black swan which causes flight to safety. At least I see that as the greatest risk to AUD longs.
My bro is looking to buy a Thai apartment and I suggested now is probably a better time the normal to buy due to exchange rate (baht mainly pegged to USD). A pull back now would make me look smarter than I am
Hey Dean. How are the prices of apartments in Thailand? I’ve been talking to a few people about distressed real estate in Arizona. But perhaps it’s time to get that faded palace in Havana. Either which way, there appears to be an unwritten consensus that the AUD is ahead of itself. Perhaps its a misguided belief that China can’t continue to hold up the world’s commodity markets? Or that super loose global money has reached a turning point?
If you want to take a trip to the States on a RE buying spree count me in. Now is the time to start buying CF positive properties there with a view to buying more regularly over the next few years. Great exchange rate, historically low US interest rates, low RE prices…sounds like a wonderful trifecta to me.
Need to find a good buyers agent and property manager.
According to my bro Bangkok apartments are cheap. Nice large four bedroom apartment in good location for around $250k, IIRC, but don’t quote me on that price.
Would you prefer somewhere warm or with snow? Just goes to show how far out of whack are our Australian prices…
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