AUD seems to be right in the market’s spotlight at present given the improvement in global growth, especially in China. Yesterday’s China data drop was generally above consensus, however if you look at the aggregate finance numbers released later in the day they were some 65% above consensus. To us it seems logical that China is happy to keep the pro-growth measures ticking along as the Fed looks to embark on tapering to avoid a capital flight from China and even encourage capital inflows. The pair hit a high of 0.9319 overnight and continues to gravitate to our target of 0.9400. We feel buying dips in the short term is the market’s preference given the short-term trend and a weak number in today’s Westpac consumer confidence at 10:30 could see a slight pullback materialise.
US markets are higher now for six straight days, although they look lofty from a valuation perceptive. Investors continue to put money to work as piece by piece global macro concerns abate. After a good lead from Wall Street, we see the ASX 200 opening at 5230 and traders will be keen to see if the market can close above the September 3 high of 5207.7, and more importantly the year’s high of 5249.6 printed on May 15. A strong rally in the Chinese equity market and Japanese market could be the catalyst.
We highlighted gold in last weeks ‘one to watch’ and we feel downside risks still prevail and look for the metal to reach our target of $1345 in the near term. With Syria fading into the background slowly but surely we feel traders are preferring growth-focused assets than safe havens, although there are still macro risks, so gold isn’t likely to pullback aggressively anytime soon.
Technically we feel AUD/JPY looks even more encouraging than AUD/USD given traders are looking to pick up carry. In an environment where volatility is low and risk assets are generally creeping higher, traders will look to buy high-yielding assets and fund the trade by selling low-yielding assets like JPY or USD. We prefer the JPY given we like to align ourselves with the central bank thought process and right now the BoJ still would like a weaker JPY. The close above the July 9 high of 93.07 has materialised and momentum-focused traders will now be keen to watch for a daily close above the 38.2% retracement of the April top August sell-off at 93.66.
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