AUD/USD: Levels, Ranges, Targets

In a series of prior research articles, 10 year monthly average regressions were ran against AUD/USD Vs OCR, AUD/USD V GDP, GDP V Headline CPI and AUD/USD V OIS. In every instance and most especially in shorter 1 and 2 year monthly averages, AUD/USD Correlations were deeply negative. Big Glenn Stevens many calls for a lower AUD never materialized because AUD/USD’s price is miles away from synchronicity to its own system of interest rates and economic announcements.

At a negative 29% correlation in AUD/USD V OCR, a lower AUD materialized only if Stevens raised OCR, raised OIS, raised GDP and asked where AUD/USD fits into the negative 39% GDP V Headline Inflation scenario. Current headline Inflation at 1.9% and 1.50% OCR are clearly off kilter as Inflation must lower in order for GDP to rise  and the mismatched result would see AUD lower.

Against AUD exchange rates, AUD/USD correlated negative 50% to its main pairs in AUD/CAD and AUD/NZD. In AUD/CAD is most vital because its an overall risk barometer to  currency market prices and AUD/NZD is vital due to the historic abundance of trade between New Zealand and Australia. In AUD/USD Vs EUR/USD, current correlations run +44% to inform AUD may or may not follow EUR/USD explicitly or may follow prices on a delayed response but it explains AUD short ranges.

Overall, AUD/USD’s price should trade much higher in order to connect properly to its interest and exchange rates as well to its  economic announcements  but headwinds face AUD as a lower AUD favors exports especially in Iron Ore and Wool. AUD must now factor the implications to many trade offs in an off kilter system to exports. But success in Exports are located in the Trade Ables V Non Trade Ables in Australia Inflation. Trade Ables answers is Australia producing export goods at a rate profitable to Export.

Iron Ore is the main ingredient to produce Steel and Australia as well as China are the largest exporters of FE Iron Ore. AUD is vital as a currency pair and to USD because Iron Ore prices are set in the United States  around 4:30 pm every trading day. China is the only other nation responsible to set Iron Ore prices. Australia as the largest producer and exporter to Wool is experiencing a massive resurgence in demand based on the Eastern Market Index, the EMI.

The average for the following  set of averages is located 0.8264 and 0.8264 is just above the 5 year at 0.8180. The larger context to 0.8264 and 0.8180 is extreme prices are located from 0.6986 to 0.8690. The mid point is located at 0.7831 and is found at my Special average. Higher for AUD/USD must break 0.7831 and 0.7855. At current 0.7763, AUD/USD is not only far outside its 18 year range but it must break 0.7831 to trade back to its proper position. The current target for AUD is located at 0.7838 and informs how vital and rough will be the break at 0.7831. AUD remains off sync to its own averages.

Only 5 break points exist below but note the levels are located at the shorter averages. Vital points are as follows,  0.7792, 0.7784, 0.7669, 0.7597 and 0.7559. AUD/USD’s bottom is located at 0.7559.

While the 18 year averages are dead neutral, the daily view informs current averages are miles to high and this means much lower for AUD. Current AUD is oversold both from a daily and long range perspective. The strategy is a cautious sell rally approach.

The averages:

80 day = 0.7784

Special = 0.7831

334 = 0.7669

592 = 0.7559

847 = 0.7597

1102 = 0.7950

1357= 0.8309

1279 = 5Y = 0.8180

1613 = 0.8626

1872 = 0.8857

2129 = 0.8885

2384 = 0.8746

2562 = 10Y = 0.8750

2640 = 0.8754

2894 = 0.8710

3150 = 0.8610

3409 = 0.8539

3589 = 14Y = 0.8472

3665 = 0.8452

3921 = 0.8311

4175 = 0.8133

4429 = 0.7965

4686 = 0.7855

4909 = 0.7792

 

Brian Twomey