Article / 11 February 2013 at 14:02 GMT

AUDUSD getting interesting

John J Hardy John J Hardy
Head of FX Strategy / Saxo Bank
Denmark

AUDUSD has experienced a sharp fall through first critical support levels – unfortunately it could be a long while yet before we get a structural resolution – because the structures within which AUDUSD is trading are so enormous, but let’s see where the latest moves have taken us.

Chart: AUDUSD Weekly 
The most salient feature is the long-standing (seemingly eternal) semi-triangle that stretches all the way back to 2011. Note the recent attempt to break the upside that failed to bear fruit and immediately preceded the recent sharp decline. The bottom of the choppy range extending back to Q3 of last year comes in just above 1.0150 – the next strategic level to watch. Still, the rising line of consolidation is the ultimate test and this still lies a long way off – well below parity. Just remember from markets past that AUD can move in a big way very fast if markets get touchy – the recent low volatility environment has coincided with extreme complacency.

audusd_w

Chart: AUDUSD Daily
The pair broke below the 200-day moving average, which hasn’t proved much of a trigger previously, but still it was an interesting milestone, as was the successful hold of the 1.0344 resistance on Friday – that is important upside level of note for now. To the downside, I’ve indicated the 1.0150 range support that will get focus if the symbolic 1.0250 level falls in the days ahead.

audusd_d

 

Looking at coincident indicators for the AUDUSD, there are two things that interest me- risk appetite and gold. First is the degree to which AUDUSD has become disconnected from risk appetite: for the last several years, AUDUSD and risk appetite have generally followed each other tick for tick as the global investment environment was only about the opening and closing of (mostly the Fed’s) monetary faucets and the implications for risk appetite, with AUD serving as the pro-risk instrument and the USD as the anti-risk one.

Some of the recent interruption to this may have to do with the advent of aggressive BoJ policy and the suddenly strong EUR, which has put the US dollar and the AUD oddly in the middle of the pack among major currencies in terms of volatility. The Euro and the JPY have thus unusually served as the highest beta currencies among the G10. So some of the weak AUD is undoubtedly come on the unwinding of one of the great macro trend trades of 2009-2012: short EURAUD.

From here, however, I am reluctant to say that AUD has fully decouple from risk appetite, just that the effects are less direct or immediate than previously. As well, there is the recognition that Australian domestic fundamentals play a part and don’t look so great either. The current attitude toward risk assets is extremely complacent – if that complacency turns to fear, the AUD will likely suffer and its volatility will almost inevitably pick up. This could lead to AUDUSD finally taking out the bottom perimeter of the massive triangle of consolidation shown on the weekly chart above in the weeks/months to come.

Finaly – commodity prices outside of the energy complex have been a bit weak lately and not tracked the major equity markets higher. Remember, AUD is called a commodity currency for a reason. With gold trading through the critical 1650 area again today, things are getting interesting for precious metals markets and this is a risk that is independent of “risk appetite” as measured by equities, credit, etc…

1y
Georgio Stoev Georgio Stoev
Perhaps as the EUR/USD is taking a breather we can see more pressure on the AUDUSD. Possibly testing that intermediate, support line at 1.015

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