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Rate Cut Talk Saps Strength of the AUD

Burkhardt's picture





 

 

Rate Cut Talk Saps Strength of the AUD

Justin Burkhardt | FXFocus.com

Australia’s economic engine has been firing on all cylinders since June of this year gaining a significant amount of traction against other major currencies. Last week the released economic reports were positive, which led some analyst to interpret this as a continuation of the bullish trend. These analyst even went as far as to state that it would be a bad move to short the AUD, but that couldn’t have been further from the truth.  
 
Even the strong falter. As the dynamics within this global economy become more severe, the strengthening local economies find it more difficult to remain on course. The situation in Australia is that the country’s currency appears to be overvalued which impedes their ability to compete in the global market place.
 
The Reserve Bank of Australia  (RBA) discussed interest rate cuts to today to bolster their outlook. The nation’s treasury said the Central Bank would be able to ease monetary policy IF the currency gains are hurting the economy. The end result was that interest rates remained unchanged at 3.5 percent, which caused an immediate trend reversal against other major currencies.  Was this the intended outcome of the Central Banks decision in order to bring the value of the country’s currency back to a state of equilibrium?
 
Trade Expectations
 
As traders, we should constantly be stepping back to look at the bigger picture.  The chart reveals a story, where has the trend been and where will it likely end up.  After listening to the analyst state that the bullish trend would continue, I immediately disagreed because the chart indicated that this rally had reached its end.
 
The AUDUSD has been consolidating into a triangle formation since July of 2011, the pair has completed waves “a” through “d” and is moving into wave “e” now. My projection for this new move is that the pair will cross parity falling into the $0.97 range.
 
Learn how to maximize profit potential in this ensuing move by joining the Forward Thinking waiting list today
 
Indicators On Watch for the Week Ahead

  • AUD Reserve Bank Board - August Minutes (August 21)
  • NZD Reserve Bank of New Zealand 2-Year Inflation Expectation (3Q) (August 21)
  • NZD Credit Card Spending (YoY) (JUL) (August 21)

 

Screen Shot 2012-08-17 at 3.41.33 PM

Your currency analyst,

Justin Burkhardt

Screen Shot 2012-08-17 at 1.25.23 PM
 


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Sun, 08/19/2012 - 00:12 | Link to Comment Praetor
Praetor's picture

"Australia’s economic engine has been firing on all cylinders since June of this year gaining a significant amount of traction against other major currencies."

 

A more apt desciption is Australia's economic engine is an untuned pinging engine crying out for oil. Manufacturing is dead, retail is dying and the Eastern states are in near recession. The only thing keeping this engine from flying apart is the worlds requirements of our minerals.

The only reason they will lower rates is 1) To stop house price dcreaeses that willstop all the old farts complaining about their home values, and 2) To get people to spend more at the shops and they may have some more coin to spend once the mortgauge rates go down.

Sat, 08/18/2012 - 03:15 | Link to Comment Peter Pan
Peter Pan's picture

The Australian government is going through its stupid phase as it watches the dollar go higher and higher while manufacturers close down or transfer to Asia.

Should the Reserve Bank lower rates without increasing equity requirements, then there will be a disaster of untold proportions once those rates reverse or the economy truly slows down.

Australia is a lucky country full of stupid politicians.

 

Fri, 08/17/2012 - 21:14 | Link to Comment Yen Cross
Yen Cross's picture

 Australia is a beautiful country. It's being abused as a "quasi safe haven"!

  How can you have a currency that is overvalued by 12-18% based on my " BIG Mac" profile , and starving exporters enjoying the carry trade for much longer?

   Australia doesn't have the "GDP" to influence anything other than "Western" protection!  Australia enjoys a 'AAA' rating across the board for the carry, and the RBA knows it!

 Why do the big 4 in Australia keep complaining about borrowing costs? Yet their 10 year bond has been flirting with low yields for weeks?

Fri, 08/17/2012 - 21:18 | Link to Comment BigDuke6
BigDuke6's picture

So spit it out yen - is it going to drop?

i'm surprised its stayed high i must admit but again everytime it dips it bounces back.

i like it.... it makes vegas cheap... 

Fri, 08/17/2012 - 21:00 | Link to Comment BigDuke6
BigDuke6's picture

Australia is like china.

people keep predicting its demise and nothing happens.

and my good bogus dr benway - the bubble in property is no longer much of a bubble - prices here have been static for the last 6 or seven years apart from certain cities with mining interest.

no pop to happen, and on investment properties the loss between rent and the mortgage is tax deductable so when prices drop investors start sniffing.

that combined with a government hell bent on keeping them propped up means no bubble alas.

Fri, 08/17/2012 - 22:44 | Link to Comment SHRAGS
SHRAGS's picture

no pop to happen, and on investment properties the loss between rent and the mortgage is tax deductable so when prices drop investors start sniffing.

The negative gearing ceases to work once the owner retires.  The age distribution of negative gearers is disproportianally skewed towards the baby boomers & 1 in 7 Aussies owns an investment property.

macrobusiness.com.au covers property pretty well, here's one article

 

Tax Stats Unmask Negative Gearing

By Leith van Onselen

The Australian Taxation Office (ATO) today released its Taxation Statistics for the 2009-10 financial year, which once again revealed that Australia has become a nation of loss-making landlords.

Below are the key tables from the ATO release. First, the summary of rental deductions for the 2009-10 and 2008-09 financial years:

[table 2.5 in ATO report]

http://www.macrobusiness.com.au/wp-content/uploads/2012/04/ScreenHunter_...

According to the ATO, there were a total of 1.75 million property investors in 2009-10 claiming aggregate rental losses of $4,810 million, or $2,746 each.

Next is a table showing the breakdown of investors by income bracket, split-out by negatively geared (loss-making) and positively geared:

[table 2.6 in ATO report]

http://www.macrobusiness.com.au/wp-content/uploads/2012/04/ScreenHunter_...

 

Some interesting (worrying?) facts can be deduced from the above data:

  • 1 in 7 Australian taxpayers are a property investor (either negatively geared or positively geared);
  • 1 in 11 Australian taxpayers are negatively geared, representing 63% of property investors;
  • 74% (825,284) of negatively geared investors earned less than $80,000 in 2009-10; and
  • The average loss for a negatively geared property investor in 2009-10 was $9,132.

The big question remains: with Australian housing values down over 5% since 2009-10, and with the outlook for capital growth subdued, will Australia’s 825,000 middle to lower income earners continue pay their property a dividend in the hope that it repays them with capital growth?

unconventionaleconomist@hotmail.com

Sat, 08/18/2012 - 06:07 | Link to Comment BigDuke6
BigDuke6's picture

thanks cobber

i get their letter but havent been reading recently.

i may now.

Fri, 08/17/2012 - 20:48 | Link to Comment Dr Benway
Dr Benway's picture

As the Australian housing bubble falters, the RBA will gradually lower the rate to zero, and the AUD will be toast.

Fri, 08/17/2012 - 21:02 | Link to Comment Yen Cross
Yen Cross's picture

 The RBA refuted intervention. Japan is Australias 2'nd largest trading partner.  ( Japan, "the masters of the Universe when it comes to intervention) /sarc

 Look @ Australian bond yields, and ponzi China #'s for guidance.

Fri, 08/17/2012 - 20:34 | Link to Comment Yen Cross
Yen Cross's picture

  I didn't junk you. You like wave theory. I don't, as I have watched m-5 charts defy it more than 5 & less than 3 times.

  Have a good w/e.

Fri, 08/17/2012 - 19:44 | Link to Comment Yen Cross
Yen Cross's picture

 Charts aside. Lets discuss the Australian dollar.  Allow me give you some key levels. 200day sma, 61.8 Fibi @1.0360 divided by key daily support @ 1.0380/90.

            Trying to draw channels and T/L's is futile. I have been trading the m-5 in this chop, backing up against the 200bar. (weighted avg.) This chart has a weighted 10,20,50,100,200 bar on it.  I'm also using zero lag macd/ RSi/ OSMa/ and a unique oscillator.

    That has got to be the weakest attempt @ a chart I have ever seen!  BTFD on Sunday, aud/usd & aud/jpy ( wait for the consolidation) before the Tokyo fixing!

  Oh! & Get those delusions of grandeur, Re; eur/aud & gbp/aud short covering out of your head!

Fri, 08/17/2012 - 18:13 | Link to Comment diogeneslaertius
diogeneslaertius's picture

hard to really critique anything on ZH, because its 99.99% gravy

Fri, 08/17/2012 - 18:12 | Link to Comment diogeneslaertius
diogeneslaertius's picture

your lack of hedge brings all the boys to the yard

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