Reserve Bank of Australia (RBA)
governor Glenn Stevens appeared before an Australian government committee last
night (GMT) and, once again, attempted to signal that the Aussie dollar should
be at a lower exchange rate than it currently is. In a Q&A session he said “…the
risk of an Australian dollar fall is underappreciated”.
And, indeed, it does seem overvalued
given the fundamentals: an economy that is transitioning, with a level of
uncertainty, from being mining and commodity export based to one that relies on
local consumption; an unemployment rate that is rising, albeit still low by
global standards; a sky-high cost-of-living; and a reduction in the terms of trade,
or the surplus of export dollars over imports.
But hindsight is a wonderful thing.
It now appears that the Australian currency has been uncommonly resilient on
the back of a demand for Australian sovereign bonds, and a concomitant willingness
on the part of the Oz authorities to issue them (to buy Australian bonds, investors
must first change their currencies to Australian dollars). After all, the country
is still one of the few that enjoys a triple A rating on its debt. And, even at
2.5%, which is historically low, the base rate is still many times that in all
other major economies, where they have gone to effectively zero. Truly, in the
valley of the blind, the one-eyed man is king.
AUDUSD
probing to the downside
Having said all that, the Forex
market has the capacity to confound when any view has been taken on rate
direction. And, from the Technical Analysis (TA) standpoint, the Aussie dollar now
seems to be tentatively probing a move to the downside. It can be seen from the
chart above that AUDUSD dipped below its 200 day Exponential Moving Average (EMA)
recently. It has also embarked on a possible series of lower highs and lower
lows, the characteristics of a down trend, should one be in the making.
While we have not been particularly active in our trading during the quiet and choppy holiday season, as we do not chase the market - enter it just for the sake of being in it -
we have been carrying out historical and real-time simulations. In this
connection the Mandelbrot routine took a position on the short side in AUDUSD.
While it does not use the 200 Day EMA in its algorithms, it is interesting that
this move coincided with the fall below that indicator. Mandelbrot quickly drew
in its horns, however, closing out for a tiny loss (0.0593%) when price once
again moved against the position it had taken.
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