Intraday Market Thoughts

Aussie Hung Up on Election, Silver Breaks $21

by Adam Button
Jul 4, 2016 1:55

The possibility of a hung parliament is weighing on the Australian dollar in early-week trading. The New Zealand dollar was the top performer last week while sterling lagged. Weekly CFTC positioning data showed GBP shorts heading for the exits. On Friday, we took a 179-pt gain in silver and opened a new trade later in the day. Silver has nor broken above the $21 level.

Aussie Hung Up on Election, Silver Breaks $21 - Gold Silver July 3 (Chart 1)

Malcolm Turnbull's gamble to call an early election may have backfired with his coalition possibly losing majority status. He's ahead in 66 seats but needs another 10. At the moment, the uncertainty is hurting the Australian dollar. Vote counting resumes Tuesday and final results may be unclear until the end of the week.

AUD/USD is down a third of a cent early on worries that Australia could lose its AAA-rating. The thinking is that a flimsy government is far less likely to employ fiscal discipline. In general, election worries tend to be overstated and if there is a significant fall in AUD, there will be an opportunity to buy a dip.

However, the RBA decision will be the dominant factor in the day ahead. The market is pricing in a 13% chance of a cut in Tuesday's decision. Signals about the August meeting will be key because the market is pricing in a 57% chance of lower rates then.

Perhaps the election uncertainty will give the RBA a reason to cut or be dovish. Data points to watch are Melboune Institute inflation expectations for June. The prior reading was just 1.0%. At 0130 GMT, the focus is on Australian building approvals for May; they are expected to fall 6.4% y/y.

Overall trading is likely to be thin to start the week with the US and Indonesia on holiday.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.

EUR -62K vs -61K prior JPY +60K vs +52K prior GBP -43K vs -52K prior CHF +11K vs +15K prior AUD -2K vs -7K prior CAD +8K vs +3K prior NZD -3K vs -3K prior

This is the first look at post-Brexit positioning but given the volatility, the only thing it tells us is that longer-term shorts have taken profit. In the overall scheme, yen longs are increasingly comfortable.


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