Short AUD/USD (From 6 Aug to 10 Aug)
Real-Time AmpGFX – Bought AUD/USD to close short position, lowered NZD/CAD s/l (Fri 8/10/2018 7:22 AM MT)
Bought AUD/USD at 0.7307 to close short position (positioned opened at 0.7385 on 6-Aug).
Lowered stop loss in NZD/CAD
Comment
The AUD has dropped on global risk aversion related to Turkey. It might also receive some additional downside pressure on a higher than expected US CPI core data.
However, Asian markets may be resilient to developments in Turkey with limited direct exposure, and policy responses in Turkey could again stabilise the TRL and see a rebound in Asia EM.
The RBA policy statements were upbeat and showed little to no additional risks to their outlook for above-trend growth.
Chinese economic data next week may be stable, and recently China may be shifting to stabilise the CNY relative to other Asia and EM currencies.
The Chinese property market has been strengthening recently and Chinese steel prices have remained stable to firmer in recent weeks. Chinese property data is also due next week.
The Australian labour data next week is a wild card. These were stronger than expected last month. Overall there is little reason to see this data as likely to be weaker.
The position was taken initially on thoughts that the RBA may highlight more risks to their outlook. This was done only at the margin, and in some respects, they appeared more confident in the outlook.
Overall the AUD/USD may still be in a downtrend, but we prefer to keep risk low into next week’s Chinese and Australian data and the risk of rebound in EM markets.
We remain short NZD/CAD, and have lowered our stop-loss.
Positions
Short half unit NZD/CAD at 0.8914; s/l 0.8748; t/p 0.8513
Short half unit NZD/CAD at 0.8914; s/l 0.8748; t/p 0.8513
Real-Time AmpGFX – RBA policy statement steers a steady course (Mon 8/6/2018 11:28 PM MT)
The RBA policy statement retained the key elements keeping rates stable largely as expected.
It downgraded its view on China from “continues to grow solidly” to “has slowed a little”, and noted that China was “easing policy” and retained its assessment that China was “continuing to pay close attention to the risks in the financial sector.”
Of the higher funding costs for Australian banks, it said: “Some lenders have increased mortgage rates by small amounts, although the average mortgage rate paid is lower than a year ago.” An acknowledgement that financial conditions were a bit tighter than a month earlier.
Its assessment of the growth outlook, employment and wages were largely unchanged. It paid lip-service to the drought-affected farmers. Growth is “expected to average a bit above 3 per cent in 2018 and 2019.”
It gave a bit more colour on its unemployment forecast, saying that “a further gradual decline in the unemployment rate is expected over the next couple of years to around 5 per cent.” This suggests that it sees the labour market close to fully employed in two years.
This might seem a touch more optimistic than its previous assessment that “a gradual decline in the unemployment rate is expected, after being steady at around 5½ per cent for much of the past year.” Perhaps it is an acknowledgement that the unemployment rate has made a bit of progress towards lower levels, recording 5.4% in May/June.
It retained its view that “the Australian dollar remains within the range that it has been in over the past two years.”
On the housing market, it was a bit more bearish noting that “nationwide measures of rent inflation remain low.”
Its final paragraph on policy guidance was unchanged, noting progress towards targets is “likely to be gradual” implying rates are expected to be on hold for some time.
It will be interesting to see if the RBA again notes in Lowe’s speech tomorrow and the SoMP on Friday that it expects the next move in rates to be higher. Since there is no change in their key forecasts and outlook, we should presume this is still their central forecast. However, it will be interesting to see how they assess the risks around this forecast. It seems they are still reluctant to see room to cut rates further.
It said, “The low level of interest rates is continuing to support the Australian economy. Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual. Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.”
We sold the AUD ahead of the statement, expecting little change in the statement, but seeing a risk that it might show greater concern for downside risks from abroad and the housing market. At the margin, it has done so, but it has reinforced its message that it expects to the economy to retain above-trend growth and return to its inflation target in time. There is not enough in this statement to weaken the AUD. However, we prefer to stay with our short position in light of the risks as we see them related to housing and Chinese financial and economic developments.
Real-Time AmpGFX – Sold AUD/USD, thoughts on upcoming RBA statements (Mon 8/6/2018 7:09 PM MT)
Sold half unit AUD/USD at .7384
Comment
Ahead of the RBA policy statement today I see a risk that there is revealed some greater uncertainty about the outlook for the global and domestic economy related to weaker Chinese markets, trade tensions, Brexit, some softening in European economies and ongoing weakness in some emerging markets.
The outlook for the domestic economy may seem more uncertain with some acceleration in the housing market downturn and higher bank funding costs.
The RBA may not change its forecasts, but they have tended to sound relatively optimistic over recent months, and they may pay more attention to the risks in upcoming statements.
While the RBA may decide to make few changes to their policy statement today, there is a risk that it makes significant changes to it, given that this is a week in which it releases their quarterly statement on monetary policy. The policy statement often reveals key changes in the tone of the quarterly policy statement.
The market does not appear to think there will be any changes in the policy statement today, such that there might be limited upside for the AUD on an unchanged statement, and significant downside on small tweaks.
Positions
Short half unit NZD/CAD at 0.8914; s/l 0.8888; t/p 0.8513
Short half unit NZD/CAD at 0.8914; s/l 0.8888; t/p 0.8513
Short half unit AUD/USD at 0.7384; s/l 0.7478; t/p 0.7238
Our Capital at Risk: AUD/USD 126bp
By setting an initial stop loss of 0.7478, our (AmpGFX) percentage loss would be 1.27%. Based on our trade size this represents 126bp or 1.26% of our trading capital.
In the past, I have provided some guidance on the relative size of our trades using “units”. I am working on providing a clearer understanding of the actual amount of capital we have at risk, as reflected in the results we report on our website.
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