Aussie's Latest Boost

by Ashraf Laidi
Apr 2, 2009 17:50 | 21 Comments

Before exploring the latest boost to the Aussie, let's first go over today's surprisingly smaller than expected 25-bp rate cut from the European Central Bank. The ECB is likely to use the next 4 weeks in elucidating its intention to keep the door open for further conventional easing (rate cuts) and starting non conventional easing (asset purchases and extending term lending) as early as the next meeting. Currency markets are no longer subscribing to the much punditized notion that slower/ further ECB rate cuts keep it behind the curve at the expense of the euro. The realities of the market remain shaped by the positive impact of rising risk appetite on EUR, GBP, CAD, AUD, NZD at the expense of JPY and USD.

The latest burst in risk appetite boosted the Norwegian krone and the Aussie at the top of the list of major currencies. Ive long discussed in previous notes
highlighting the long term fundamentals of these two currencies on the basis of positive fiscal balances, favourable external imbalances and relatively generous yield foundation. The Norwegian currency has practically become a household name as of late after outperforming all major currencies since the beginning of the year. It is also the only currency to have appreciated against the price of gold. Chapter 8 of my book Currency Trading & Intermarket Analysis made the case for the Norwegian Krone for being more than just an energy-dependent currency. (The book was completed in last summer).

Aussie's Latest Boost - Aussie Wheat Apr 2 (Chart 1)

Aussie traders will find long term positives in the latest USDA report showing US farmers to reduce total acres with corn, soybeans and wheat this year. The USDA announced that planned wheat plantings were to drop 7.1% from last year when seedings were the highest in 10 years. Australias position as a leading top producer and exporter of wheat, allows it to gain from the rise in crop, as was the case in 2007 to H1 2008.

Forex traders seeking more concrete trading ideas can find the track record of my trading calls favouring AUD, and NOK by clicking here .

With US jobless claims at fresh 27-year high of 669K and continuing claims at a record 5.73 million, it is a reminder that macroeconomic deterioration in the US is far from having reached its trough. Even if Friday's March jobs report from the US shows further stabilization on the payrolls front (as did the last 3 reports), the US unemployment rate is likely to exceed 8.1%, thereby, surpassing that of the Eurozone and Germany, a development that could not be imagined just a few months ago by the classic critics of the Eurozone model. And with US consumer credit delinquencies in Q4 surging to an all time high, the deleveraging process within US households relative to that of the Eurozone is another dynamic supporting medium term stabilization in the single currency.

Funding the Fund with Gold. The G20 announcement of tripling IMF resources to $750 billion offered an extra boost for equity markets and higher yielding currencies at the expense of further damage in the dollar and the yen. The G20 confirmed our predictions that central banks will incorporate gold sales to finance assistance for lower income nations. Central banks gold selling would also help stabilize any renewed selling in the greenback and prevent any unwanted appreciation in other currencies.

China's aspiring role for becoming the IMF of the Eastern Hemisphere fits with increased assistance for the multilateral institution ahead of the WB/IMF meeting later this month in Washington.
Chinas various currency swap arrangements totaling CNY650 billion with its trading partners (South Korea, Hong Kong, Malaysia, Indonesia, Belarus and Argentina) comprise a major step towards turning the yuan into an invoicing currencya natural course for bolstering its role as a reserve currency. Chinas membership in the Inter-American Development Bank and its US$350 million contribution to the agency's lending, should also enhance its role in assisting Latin American and the Caribbean nations.

Comments (Showing latest 10 of 21) View All Comments
Ashraf Laidi
London, UK
Posts: 0
10 years ago
Apr 16, 2009 12:31
Ismail, Q2 seen dending at 1.30. year end around 1.34.

Ashraf
Ismail
Baku, Azerbaijan
Posted Anonymously
10 years ago
Apr 16, 2009 2:00
Hi Ahsraf, what is your short-term outlook (2nd quarter), as well as end of year outlook on EUR/USD? Thx
Ashraf Laidi
London, UK
Posts: 0
10 years ago
Apr 15, 2009 7:15
Nick, your question is right on.. NZD is a better short than AUD and NOK because NZ fundamentals are not as robust. RBNS still widely expected to cut rates by at least 50 pts (not the case with RBA). Thpugh Norges bank said they coudl take rates down below 1.50%, their fundamentals are far better than NZD. GBP behaving as a risk currency due to successful sale fo Barclays Ishares and lack fo bad news on british banking front.


Rob, thks for your kind words.. but my calls on CAD have not been good. i had been far too bearish too early in the loonie.. yet it does look increasingly negative as BoC speaks of quantitative easing.

Ashraf
Rob
New York, United States
Posts: 305
10 years ago
Apr 15, 2009 3:12
Hey Ashraf,

Fantastic calls these past few days (as usual) - and thanks for the specifics on those calls in the chart and IMT's.
Nikkei-225 closes morning session at 8,768.35!!! - You're 8,770 mark couldn't have been better!!!

Thanks for everything!
Nicholas Ellis
New York, United States
Posted Anonymously
10 years ago
Apr 15, 2009 0:46
Hi Ashraf,

Do you think the Kiwi is the best high yielder to sell on risk aversion days as opposed to the NOK and the AUS?

Also, why do you think the pound is acting so bullishly compared to the EUR? Is it because the BOE is already in Quant Easing?

Thanks for all the analysis.

Ashraf Laidi
London, UK
Posts: 0
10 years ago
Apr 9, 2009 17:27
Chris, good points. technically, pair looks very consolidative, but i really prefer Aussie fundamentals to those in South Africa. Today's candle may be a positive for the Aussie but subsequent support seems to stand at 6.40.

Ashraf
Chris
Cape Town, South Africa
Posts: 3
10 years ago
Apr 9, 2009 14:05
Hi Ashraf,

What are your thoughts on the AUDZAR over the coming two months (until end of bear rally like you postulate will be June-July), it seems the ZAR has benefited more from the increased risk appetite than has the AUD.

Thanks for great book and site. Chris
Ashraf Laidi
London, UK
Posts: 0
10 years ago
Apr 8, 2009 17:58
Shankar, are you sure you want to buy AUDJPY at this point? Bear in mind the pair is positively correlated with equities and overall equity indices may come under further pressure during earnings season. Not sure what's your horizon or margin contraints, but keep in mind of the 68.35 support, which is a trend line support as well as a prior high (Jan 6). Ive talked about going long AUDJPY in last week's Hot-Chart. How about going long AUD vs NZD?

Ashraf
Shankar
Australia
Posted Anonymously
10 years ago
Apr 7, 2009 14:51
Ashraf, I have just stopped trading on EURAUD, i was selling Eur against the aussie. Now I am looking to short yen against aussie in the view that japanese core export industry cant survive in the long run without yet eventually heading to around 160 against USD. Politically and even monetarily they are very strong to let that not happen i,e, take it down to 160 against used. Fair comment.??
f
Brussels, Belgium
Posts: 25
10 years ago
Apr 6, 2009 17:00
Thank you Ashraf!