To understand AUD/USD tight ranges and containment inside a 7 month parameter between 0.7300’s to 0.7700’s, OCR is the first problem because its far to low and oversold. The second conundrum is AUD/USD Correlations over 7 months remained constantly negative 70% to 90% to AUD/JPY and sustained + 80% to + 90 to AUD/CHF. AUD/NZD ranged on either side of 50% while AUD/CAD shared a weekly and revolving positive to negative relationship. AUD/USD not only lacks ability to run correctly with its cross pairs but the last aspect to AUD/USD ranges is the economic front.
While + 0.5% in Retail Sales was positive, Food accounts for a vast majority of the positive reading as Department Stores were negative 0.2% as well as Clothing, Footwear and Personal Accessories at minus 0.1%. The overall trend as reported by Australia’s Bureau of Statistics is down. Business Investments are down 4.9% for the quarter and 6% for the year and will weigh on Wednesday’s GDP release.
This week’s possible range break will be determined by Tuesday’s RBA Statement, Wednesday’s GDP as well as Import / Exports, Inflation, Factory Orders and Current Account.
AUD/USD trades between 1 and 2 year monthly averages from 0.7520 to 0.7429. From Friday’s close at 0.7452 and inside the current range, vital resistance and must breaks to go higher are located at 0.7777, 0.7770, 0.7739. Higher means next most important inflection point at 0.7825. Upper ranges are seen only upon breaks at 0.7530, 0.7588, 0.7604 and 0.7674.
Below points begin at 0.7433, 0.7406, then 0.7360 and 0.7355, 0.7317, 0.7311, 0.7254 and 0.7215. AUD/USD ranges from 0.7700 to 0.7200 are defined by 0.7500’s in days ahead.
From a daily perspective 0.7500 and 0.7588 are vital breaks and 0.7461 as a must break point for any shot to 0.7500. Failure to break 0.7500 then 0.7500 will continue its slow drop to take AUD/USD lower.
OCR from 1.62 at the 1 month level fails not only to correlate V AUD/USD at the 1 and 2 year monthly averages but its oversold. At extremes, OCR will fail to see 1.25 as this is not only overdone but 1.62 runs into 1 month OIS at 1.49 and 2 month OCR at 1.71. As was seen in last detailed posts, AUD exchange and interest rates remain severely misaligned. Lower OCR by the RBA is not seen from money market rates yet a drop would leave OCR at all maturities in further oversold and a continued misalignment to AUD/USD. Trading ranges would change but not misalignments. In sync interest and exchange rates are found only in higher OCR.
From 1.62, next OCR break at the 1 month point is located at 1.86 then 2.03 and 2.23 and travels higher to 3.97 at the 10 year monthly average. Current 1.62 trades below every average from 1 to 10 years. Targets are located from 1.86 to highs at 2.23.
Brian Twomey, Inside the Currency Market, btwomey.com