3rd May 2016 – Weekly Currency Market Report.



The Market in Brief:

  • AUD down sharply against the majors.
  • AUD March CPI prints -0.2% V expected +0.3% which adds to AUD selloff.
  • BOJ does not add expected stimulus so JPY outperforms all currencies
  • Oil up 70% from its January low to $45 after breaking 1 month resistance.
  • Gold breaks resistance to 16 month highs of USD 1,300 with Silver at 27 month highs of USD 18
  • Iron Ore up 23% over April

Market Events Due:

  • AUD Building Approvals, Cash Rate and RBA Statement (Tuesday)
  • NZD Employment Change qoq and Unemployment Rate (Wednesday)
  • AUD Retail Sales and Trade Balance (Thursday)
  • AUD RBA Monetary Policy Statement (Thursday) 
  • CAD Employment Change and Unemployment Rate (Thursday)
  • USD Non Farm Payrolls and Unemployment Rate (Friday)

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AUDUSD: As forecast the AUD fell against the USD around 3%. The short term support was broken after AUD CPI printed -0.2% V expected +0.3%, however poor data out of the US has since seen the AUD rally back around 1.5%. The RBA cash rate and statement are today and it is 50/50 at the moment, so volatility is guaranteed regardless of the outcome. We think the RBA will hold given the poor CPI was only 1 bad result against reasonably good data including strong employment over the past couple of months. We expect the RBA statement to suggest the AUD is higher than where they want it but to cut after having a neutral stance for the last few months rather than an easing bias will not look good. No cut will see a rally giving importers a great opportunity as commodities have had a huge rally. A cut will see exporters with a bigger  opportunity as the risk is definitely to the downside given the huge rally in the AUD over the last few months against the USD and the huge rally in the commodities including Iron Ore and Gold which are reaching resistance.

AUDEUR: The 6 week high and solid resistance that held for the previous 5 months stayed in tact. As stated in prior reports, the last 2 times it traded at these levels the result was a fall of 13% and 6% respectively. While we favoured the upside momentum lost steam and the AUD has now dropped 3.5% against the EUR with just a +0.5% bounce. Support which has held for the last 2 months sits 45 points below and a break suggests a steeper correction lower.

AUDGBP: Having posted a 17 month high against the GBP 8 days ago the AUD has corrected 5% and looks set to fall lower in the short term, given better than expected UK data and a steady pick up in the “No Brexit” camp. The rally is quite substantial as the AUD is now actually at a 2 month low against the GBP and exporters could get a chance at another 100 points lower judging by the charts. If the RBA cuts you will see the 100 points sooner rather than later and the medium term picture suggests a push back through 0.50p.

AUDNZD: The long term resistance that has held for 20 months was not tested and after the poor CPI data AUD fell 3.5%. There is support at this short term level but if it breaks exporters will possibly get a chance at another 150 points lower. Importers with time on their side can wait as the long term upward trend should hold firm.

AUDJPY: As forecast the resistance that has held for the last 4 months was not broken and AUD fell a massive 6.5% against the JPY, on the back of the BOJ not increasing stimulus as the market expected. The JPY subsequently went from being the worst performing currency to the best performing currency, almost overnight. AUD bounced off short term support which has held for the last 2 months, but is at a crucial level given the RBA meeting tomorrow. The big picture for the JPY doesn’t look good but they are not weighed down by the financial csot of the migrant crisis that is effecting EUR at the moment. 

AUDCHF: As forecast the AUD had a solid 3.5% correction against the CHF after posting a fresh 1 year high the week before and the last 3 times it was up here we had seen sloid corrections. A solid rally by the EUR also gave the CHF a boost. There is short term support here but a break could see it drop another 150 points to the next support level.

ALTERNATIVE CURRENCY HEDGING: Ask us about a great alternative to traditional forward contracts that give the ability to cover at attractive levels, but with the flexibility to walk away should the spot rate improve or the contract not be required.

Compass Global Markets Team.



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