Time To Rally The Aussie Bulls. By Nicholas Hastings
Aussie bulls should put their marching boots back on.
The Australian economy remains at the forefront of the global rebound and Australian interest rates are among those most likely to rise first.
The Australian currency has already rallied sharply on these positive prospects - rising from a low of nearly $0.63 at the beginning of March.
However, the rally has stalled in recent weeks as the outlook for the world economy has become more clouded and speculation over when rates will rise has swung from one extreme to the other.
The confusion over the rate outlook in Australia was illustrated by an article in The Sydney Morning Herald Monday arguing that it is premature to expect a hike in Australian interest rates as the Reserve Bank of Australia may yet need to lower rates again.
Certainly, with Australia showing little inflationary pressures, there remains scope for lower rates.
As a result, Aussie bulls have once again been swept aside and the Aussie has been sold in line with signals that global risk appetite is falling again and talk that current heavy positioning makes the currency ripe for profit-taking.
Nevertheless, economic data and forecasts continue to point to strong growth prospects for the Australian economy. Earlier this month, the Westpac-Melbourne Institute's consumer sentiment index posted it largest rise in 22 years. Monday, new motor vehicle sales soared by 5% in May, the largest increase since May 2005.
With the World Bank raising its growth forecast for China this year to 7.2.% and Chinese Premier Wen Jiabao promising over the weekend to maintain a loose monetary policy to see the country through this critical period, there is little suggestion that Australian growth with stall given its close trade relations with China.
Neil Mellor, a senior currency strategist with Bank of New York Mellon in London, also thinks there is another reason for Aussie bulls to feel confident - the high 88% correlation between the Aussie and the CRB Index. Given that the prospects of a global recovery will keep commodity prices on the rise, "then the currencies of raw material producers such as the Australian dollar should continue to outperform," Mellor said.
As a result, he is looking for an early resumption of the uptrend with technical pressure eventually taking the Aussie back up to its next target at $0.8344.
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Early Tuesday in Europe, the Aussie was under pressure with most other high-yielders, falling to $0.7830 by 0645 GMT from $0.7868 late Monday in New York according to EBS.
Worries over the global recovery, encouraged by a gloomy 1.2% World Bank forecast for world growth this year, helped to tip most equity markets lower, with the Nikkei following the Dow Jones Industrial Average's 2.4% decline with its own 2.8% loss.
The euro fell to $1.3857 from $1.3865 as well as to Y131.82 from Y133.12. The dollar was also down at Y95.20 from Y95.99.
The Australian economy remains at the forefront of the global rebound and Australian interest rates are among those most likely to rise first.
The Australian currency has already rallied sharply on these positive prospects - rising from a low of nearly $0.63 at the beginning of March.
However, the rally has stalled in recent weeks as the outlook for the world economy has become more clouded and speculation over when rates will rise has swung from one extreme to the other.
The confusion over the rate outlook in Australia was illustrated by an article in The Sydney Morning Herald Monday arguing that it is premature to expect a hike in Australian interest rates as the Reserve Bank of Australia may yet need to lower rates again.
Certainly, with Australia showing little inflationary pressures, there remains scope for lower rates.
As a result, Aussie bulls have once again been swept aside and the Aussie has been sold in line with signals that global risk appetite is falling again and talk that current heavy positioning makes the currency ripe for profit-taking.
Nevertheless, economic data and forecasts continue to point to strong growth prospects for the Australian economy. Earlier this month, the Westpac-Melbourne Institute's consumer sentiment index posted it largest rise in 22 years. Monday, new motor vehicle sales soared by 5% in May, the largest increase since May 2005.
With the World Bank raising its growth forecast for China this year to 7.2.% and Chinese Premier Wen Jiabao promising over the weekend to maintain a loose monetary policy to see the country through this critical period, there is little suggestion that Australian growth with stall given its close trade relations with China.
Neil Mellor, a senior currency strategist with Bank of New York Mellon in London, also thinks there is another reason for Aussie bulls to feel confident - the high 88% correlation between the Aussie and the CRB Index. Given that the prospects of a global recovery will keep commodity prices on the rise, "then the currencies of raw material producers such as the Australian dollar should continue to outperform," Mellor said.
As a result, he is looking for an early resumption of the uptrend with technical pressure eventually taking the Aussie back up to its next target at $0.8344.
Click Image to Enlarge
Early Tuesday in Europe, the Aussie was under pressure with most other high-yielders, falling to $0.7830 by 0645 GMT from $0.7868 late Monday in New York according to EBS.
Worries over the global recovery, encouraged by a gloomy 1.2% World Bank forecast for world growth this year, helped to tip most equity markets lower, with the Nikkei following the Dow Jones Industrial Average's 2.4% decline with its own 2.8% loss.
The euro fell to $1.3857 from $1.3865 as well as to Y131.82 from Y133.12. The dollar was also down at Y95.20 from Y95.99.
- 23 June |
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