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2015

Australian Dollar Research Report

Published: Friday 30 October 2015

Well after the excitement of August and September’s rallies to 2.20+, October has been a corrective month.   The data from the UK has been slightly disappointing, with the Bank of England seemingly back peddling from a UK rate hike the MPC still voted 8-1 to leave rates on hold but Mark Carney pushed the time frame for a likely rate hike back in his accompanying statement. 

With UK CPI inflation posting a 0.1% decline and GDP missing estimates, then it is not that surprising the timeframes have slipped.  One bright note in the UK data was retail sales, however this increase may well be a transitory benefit of hosting the rugby world cup.

The RBA also adopted a more neutral bias, suggesting that interest rates would remain on hold for the time being and that impact of the previous cuts were still filtering through to the wider economy.  The RBA felt that the weakening of the Aussie was also helping to re-balance the economy as service sector exports began to increase.    

GBPAUD has been in a corrective phase since hitting the 24th August high of 2.20+, we actually saw the market fall 16 cents to a low in the 2.075 region.  This correction was between 38.2-50% of the move from the pre-election low to the August high and not entirely unexpected given the magnitude and aggressive nature of the move.  Corrections within a long term uptrend tend to be medium term in nature i.e. a few weeks to months. 

We still remain with the longer term uptrend as shown in the graph, so we would expect to see this trend resume over the longer term.  We’re currently testing the down trend that has been in place since hitting the highs a confirmed break of 2.163 would suggest that the correction has run its course and the uptrend is resuming.

If this is case, then channel resistance is 2.186 and then previous highs of 2.20 and 2.233 will act resistance.  It is worth nothing that momentum indicators, whilst still pointing higher are extremely over-brought in the short term so we may see the market fail at resistance on the first attempt to break higher.

Buyers
If you have time on your side, then placing orders in the 2.18-2.20 region seems sensible.  The market has peaked in this region on two occasions thus far.  If you are looking to trade in the short term, then I would consider making your move around current levels just in case the market fails to break 2.163 on this move.

Sellers
As mentioned above the correction appears to have run its course and we look to be resuming the uptrend.  I would consider seeing what happens around 2.163, as long as this level holds you may be able to make a few cents but any upside is likely to be limited.  As the old saying goes, let the trend be your friend and at this stage the trend is against you.