Thursday, May 1, 2014

More bad news for the Aussie dollar | …and its downward trend is intact

The Reserve Bank of Australia (RBA) has released its latest Index of Commodity Prices, which shows a continuing decline. It has now gone decidedly below the average of 2012 / 2013 prices. This means that the largest factor, apart from the interest rate, that has underpinned the value of the Australian dollar is dropping sharply.

The text accompanying the release states that the largest contributors to the fall in April 2014 were declines in the prices of Iron Ore, coking coal and gold. Australia has been the largest foreign provider of Iron Ore to China for a considerable time. The reduction in Iron Ore prices is bound up with retraction of the wider Chinese economy, which can be expected to have implications for all the other commodities, finished goods and services that Australia exports to that great nation.

…and its downward trend is intact

Yesterday saw the AUDUSD pair achieve another lower high, to preserve the downward trend we entered as a short trade on April 23rd. However, it only just about made it (see chart above), and in so doing brought our position in the pair into a paper loss until the rate dropped again. We would, of course, like our trades to be always in profit, but this is the kind of situation that we must grin and bear for as long as the criteria for being in the trade continue to exist.

The chart also indicates a classic case of support to price as provided by the 200 period Simple Moving Average (SMA) on the four-hour chart. For this trade to prosper, the US dollar needs to strengthen, which would tend to drive the rate down through this moving average. The Non-Farm payrolls report, due later in the global day today, could be the catalyst for this. The ADP report on Wednesday last indicated 220 thousand new jobs, which is healthy for the dollar. The problem is, as has been pointed out here often, the ADP report does not always correctly anticipate the government figures.

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