The folks over at Halo Financial recently published a really useful technical analysis of the Australian Dollar and the approprateness of buying or selling Australian Dollars based on its current strength
Key points taken from the document are as follows:
The focus for the Australian Dollar was / is and no doubt will be:
1) Reserve Bank of Australia (RBA) interest rate policy and the impact of the Reserve bank announcing today to keep the interest rates on hold.
2) US Federal Reserve interest rate policy/asset purchase program extension or otherwise based on the ongoing US economic growth indicators – Fed Chairman Ben Bernanke’s testimony this week was interesting because there was no talk of QE3 and risk assets sold off.
3) Europe – patchwork applied to Greece and extension to the Long Term Refinancing Operation (LTRO) to provide more liquidity to Europe’s beleaguered banks – good news in the short term but will it be enough?
4) China – output remains strong but market remains cautious of a changing picture
Today’s decision by the RBA to leave interest rates on hold should result in the GBP – AUD to remain below $1.5000.
Global stock markets had a stellar week again, the Dow Jones breaking 13,000 the highest level since 2008 so clearly there’s strong demand for riskier assets and higher yielding currencies like the Aussie. AUD – USD got back to 1.08, only 2 cents from it’s all time high and technically the uptrend in AUD – USD remains. So they believe the Aussie Dollar will remain strong for some time yet.
As always though, headwinds remain – China and its biggest customer, Europe need to continue growing to keep stoking demand on Australian commodities. The Australian Dollar’s ongoing strength itself dampens the prospects for an export-led recovery according to RBA Stevens, and the RBA may have little choice but to expand monetary policy further (interest rate cut) in 2012 as the slowing economy reduces inflation expectations.
In terms of the GBP -> AUD price action we’ve been consolidating for almost 2 months now – market eventually gave up support at $1.4700 and made a new all time low mid Feb at $1.4558 and since then has again been trapped in a narrow sideways range $1.46-$1.49. This lack of momentum won’t last forever, we’ve got the Bollinger bands narrowing which suggests a renewed period of volatility if not far away (it does not confirm the direction of the move).
The market has broken the downtrend that began late November and whilst we have seen the market rally wince the beak – the rally has been rather meek. We’ve not yet made the first Fibonacci retracement at $1.4912 and that will be the first level of resistance. If it continues to rally then you’re looking at major resistance at $1.4998 and then the next Fibonacci at $1.5132. Now bearing in mind the RBA interest rate meeting is only 2 working days away this rally could be a flash in the pan.
The fact that the RSI’s are both bullish (above the 50) is a good sign but we really do need to see a break and close above $1.4998 to hold any hope of a proper reversal and I’m not convinced that we’re going to have that yet.
Difficult one because the threat of a retest and possible break below $1.4558 still remains. The bounce and rally off the lows has been pretty unconvincing and to my eyes we’re still in danger of a fall to $1.40 levels. I would tentatively convert some of my funds in the high $1.40’s if there was an upcoming requirement.
Let’s face it interest rates are much better in Australia than in the UK and the argument to bite the bullet and make the exchange rate loss back through the interest advantage is still a valid one. But I do appreciate that our customers can wait for the bounce, wait for the turnaround in the Pounds fortunes and have waited for 18 months already, so what’s another 12-18 months – frankly I don’t blame you and one day your patience could be rewarded. If you want to leave a speculative order at $1.50 just in case there’s a surprise rate interest rate cut from the RBA on Tuesday get in touch with your consultant by Monday afternoon (UK time)
Best selling opportunity in the history of GBP -> AUD so if you haven’t already, I invite you to contact your consultant for an exchange rate.