Speaking yesterday in London, RBA Governor Glenn Stevens said Australia wouldn’t be affected directly by the Greek debt crisis but that if there were any material issues it would come in the form of a major ruction in global markets. That ruction is still patiently waiting in the wings with Greece now in arrears (defaulting on IMF repayment due yesterday), a referendum on the bailout conditions taking place on Sunday; and possible Grexit, contagion to the rest of the Eurozone and market meltdown still a plausible scenario in the coming weeks.
Oh and it’s 36C in London today so meltdown very likely on the underground tonight....
Whilst the problems in Greece dominate the headlines other macro events are influencing the Australian dollar more directly. China’s central bank unexpectedly cut interest rates to a new record low of 4.85% over the weekend. The cut is evidence that China is struggling to meet its growth target of 7% for 2015. There’s also been massive swings in Chinese stock markets lately - CHINEXT (China’s Nasdaq) was down 25% in 3 days, with all Chinese indices having halved in value in the last month alone. In this environment demand on commodity currencies like the Aussie, will diminish adding to further downside pressure on AUD.
Glenn Stevens would be content to see the Australian dollar weaker telling attendees at yesterday’s conference that “further depreciation is both likely and necessary”. He said in December that he would prefer to see AUDUSD trade around the US75c mark (about 3% away from the current level).
Technically the rally in GBPAUD continued through June finally breaking through the Feb ’15 high @ 2.0024 and onto 2.0650. It’s approaching the 50% retracement of the large drop that started in 2008 @ 2.03145 and bottomed out in 2.13 @ 1.4383. The 50% retracement may provide solid resistance initially so the current level represent a very good buying opportunity. GBPAUD remains in an upchannel which has been in place since last October - the current range is about 12 cents from high to low so if it does fail to break through 2.07-2.08, the downside correction could see it test 1.96.
A large number of you have already traded a portion of your funds at 2.00 and well played for hanging on 6 years to get there. If you have more to do the in the short term, 2.04-2.05 may be the top. Longer term a sustained break and rally above 2.07 will open up 2.20 as the next target - with such uncertainty around Greece and the continued slowdown in China more volatility is guaranteed. On the weekly/monthly charts the pound is looking overbought against the Aussie suggesting prices may soon top out so those wanting to sit in the wings should just be weary of a drop below 1.96 - as that would a larger fall for the pound.
As long as 2.07/2.08 hold, the Aussie should regain some value - in the short term you should target 2.02 and then 1.9850 if it breaks back below 2.00 - worth placing a stop loss order above 2.07/8 to avoid a rapidly decreasing AUD on financial market meltdown triggered by Grexit contagion.