Commodity currencies in the spotlight

18 October, 2016

The Reserve Bank of Australia has been quick to speak out against the markets at present and the current view point of market economists who think that the RBA could be forced to cut rates further in the face of economic pressure. The RBA governor Philip Lowe spoke today, and believes that at present interest rates are very low and that the economy is currently rebalancing and that with the recent boost in commodity prices the economy will bounce back sooner than many predict. While ever the optimist, commodities have been quite volatile in recent times and inflation is also still lagging at present as the AUD has lifted against the USD, affecting incomes for exports and the mining sector which has boosted the economy significantly in recent times. The recent trend though in the Australian economy has had some concerned though as unemployment has been falling, but at the same time underemployment has been rising which does not bode well for household incomes in the future.

For the AUDUSD it still finds itself in a bullish position as of late despite the recent drops. The weekly chart still shows a strong bullish trend which has sustained itself in the face of bearish sentiment at times about the economy. The trend line has seen some pressure in the last month, but the AUDUSD has bounced back. One of the interesting things to note is the 100 weekly average which has been acting also as dynamic resistance in the market adding pressure for the bears and stopping future higher highs. So we are starting to see consolidation in the long run, but in the short term we are seeing each wave being weaker and weaker and it's leading to some asking how much longer until we see the AUDUSD look to break lower and test support levels at 0.7460 and 0.7328. Fixed interest trades still make the AUD a popular option, but with the US looking likely to lift interest rates it's a matter of time before it finds itself under pressure and falling.

The New Zealand dollar on the other hand has seen a sharp jump as a I write this as CPI figures q/q showed a lift of 0.2% compared to most economists predictions of 0.0%. So far resistance at 0.7180 has stopped any further gains on the charts, and it's likely with the 20 day moving average sitting there as well it won't get much further without the bears taking a swipe. This is also much lower than the previous reading of 0.4%, so while positive that the economy is not as bad off as expected, it's likely to also show that inflation is certainly lacking. The drop in the NZDUSD is sustained will give inflation a light boost as well, and may be something that the Reserve Bank of New Zealand will touch on in an effort to force it lower. I still feel though that the NDZUSD will likely look to push through the 0.70 cent support barrier in the long run, and it's only a matter of time.


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