Aussie dollar in focus in Asian trade

There’s been plenty for traders to focus on through Asia today, and those who like a bit of volatility wouldn’t have had far to look

On the forex side it’s all been about the AUD today, with further signs that the RBA’s recent change to a neutral stance seems fully justified. In terms of data, the value home loans in December fell 1.9%, however the market overlooked this and went straight through to the more current NAB business confidence and conditions, with both metrics continuing to increase.

The underlying quality was pleasing as well, with forward orders sub-component swinging from -2 to +6 and the employment sub-component moving from -4 to +1. You can also look at Q4 house price index, which gained 9.3% on the year.

AUD looking more compelling of late

Throw this all together and you get an AUD which is starting to look rather compelling to hold, not just from a carry perspective (i.e. getting paid to hold the currency), but also from a pure speculative vehicle. Against the greenback the AUD rallied to 0.9015 and looks good for a move to 0.9079 (the 38.2% retracement of the October to November sell-off), where a break here should bring 0.9156 (100-day moving average) come into play. I prefer playing the ever-changing divergence dynamic at a central bank level and thus I like to be long on AUD against currencies which have low or falling inflation. I feel AUD/CAD longs look good for a move through the October high of 1.0048, adding to positions on a close through 1.0126. EUR/AUD shorts look good and I would look to add on a close through 1.50.

It really is starting to shape up that we are in a period of AUD outperformance. You can look at better Australian data of late, good buying from Japanese funds over the last three months, positioning, and Australia’s 21% jump in two-way trade; leaving China and AUD bears running for the hills.

The ASX 200 (when it wasn’t closed for a technical glitch) has seen a ramp up in companies either reporting or coming to market with a trading or operational update. It’s really all been about banks today, with ANZ reporting a quarterly cash profit of $1.73 billion. This, when extrapolated into 1H earnings, is above the consensus forecast. Asset quality was strong, while cost growth was below expectations.

Naturally the market took this that CBA will report fairly good numbers in tomorrow’s earnings report and you know when the financial sector puts on 1.2% the broader market is going to do nicely. MQG is the exception to the rule despite coming out with an update which was in-line with expectations, although it seems given the current valuation that it needs to do better than that and really has to impress.

COH was smashed after producing a poor 1H14 result and guiding the market to a full year earnings expectation 16% below previous guidance. Bad news generally follows bad news, so I would stay cautious on this name and sell rallies, especially after the June 2013 trend break. The bulls will however take heart from the fact that COH seems to be holding the June 3 low of $52.71.

Japan is closed today, although we are seeing modest gains in the China CSI 300 and 1% gain in the Hang Seng. China takes centre stage this week, not just because gains in the Chinese stock market generally have positive ramifications for other regional markets (notably emerging markets) , but also US futures, commodities and bloc currencies too. Data comes in thick and fast this week and as mentioned yesterday, we should see a good rebound in a number of the key credit readings.

Gold also looking more compelling

We’ve seen better buying of gold of late and the precious metal looks good for a test of $1300. Having broken through $1278 (the 38.2% retracement of the August to December sell-off), gold is now trading at a new yearly high. Perhaps this is a view that Janet Yellen is likely to verge on the dovish side in today’s address to the House. We need to remember that Janet Yellen is speaking on behalf of the Fed collective, and given narrative of late from the likes of Charles Plosser (also speaks tonight), Richard Fisher, Dennis Lockhart, Charles Evans and even the ever-dovish Eric Rosengren, anyone looking for the new Chairman to deviate from the Feds recent thinking and give hints they may curb its tapering program may be mistaken.

European markets should see buyers on open and while traders will focus more closely on Janet Yellen’s speech, it will also be interesting to look at the NFIB small business optimism, which is testing multi-year highs. On the stock side Barclays report full-year earnings with the market consensus for NPAT (adjusted) at £3.94 billion, on revenue of £28.14 billion. There has been a fair bit of speculation of late about cuts to the balance sheet of Barclay’s investment banking division.

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