Time to Pick a Top in the Australian Dollar? - BBH
Research Team at BBH, suggests looking for a top in the Australian dollar.
Key Quotes
“The
low for the year was set in mid-January (~$0.6830), before the other
markets turned. The MSCI emerging market equity index bottomed on
January 21.
Between the mid-January low for the Australian
dollar to the end of March, when it recorded its high (~$0.7725), the
Australian dollar rallied 11.5%. Its rally coincided with a number of
economic considerations, including the broad recovery in commodities,
shifting expectations of Fed policy, negative interest rates in Japan,
and more negative interest rates in Europe, and about a 25 bp rise in
Australian bill rates, as expectations of a Q1 cut by the RBA faded.
The
Australian dollar's rally began before other markets, and it should not
be unexpected that it peaks first. The technical condition of the
Australian dollar is deteriorating. First, met the 61.8% retracement
objective of the slide since last May (that began near $0.8165). That
retracement was found by $0.7650. Second, there are bearish
divergences with the RSI and MACDS. There technical indicators did not
confirm the new high the Aussie set at the end of March. Both
indicators are now trending lower.
Third the Australian dollar
is posting a potential outside down day. It has traded on both sides of
yesterday's range. A close below yesterday's low (~$0.7533) would
confirm it. Fourth, over the next few sessions, the five day moving
average is likely to cross below the 20-day moving average for the first
time since January 27.
The strength of the Australian dollar,
coupled with some disappointing data, is already spurring some
speculation that the Reserve Bank of Australia could cut rates to offset
the tightening of financial conditions represented by the currency
appreciation. The derivative market has about a one in three chance
of a rate cut in May discounted. Disappointing data next week from the
labor market could elevate such expectations.
Initial support is
seen in the $0.7490-$0.7510 area. A break would signal another cent
decline into the $0.7380 area, which corresponds to old highs form last
October and November, and a 38.2% retracement of this year's rally.
Below there is the 50% retracement near $0.7275. If the Q1 16 rally was
corrective in nature, a move back below $0.7170 is possible later in
Q2.”
(Market News Provided by FXstreet)
