Why AUDUSD remains becalmed during Septembers mini storm

Post the COVID-19 stock market meltdown in March, analysts and traders alike went to great lengths to explain why the sharp rally in the AUDUSD was to a large degree a reflection of the recovery in U.S. stock markets.

Charts (3)

Based on the strong evidence of this relationship, it would be fair to think that the reverse should also be true and that if U.S. stock markets fall, the AUDUSD should also fall.

However, as the chart below shows, the AUDUSD remains just 1.5% below cycle highs, content to ignore this month’s -7.5% fall in the S&P500. A simple extrapolation of the price action from earlier in the year, suggests the AUDUSD should in theory be trading about 150 pips lower, near .7150.

Not only did the AUDUSD ignore the S&P500’s stumble in September, IMM positioning data released over the weekend reveals that speculative accounts increased their existing long AUDUSD position from 10.9k contracts to 28.6k contracts.

When looking for reasons why this occurred, it’s important to remember the price of Australia’s largest export iron ore remains buoyant, trading at above U.S $120.00 per tonne. Copper another key export of Australia is trading at 2-year highs, supported by a plunge in LME copper inventory, to its lowest level since 2005.

Elsewhere economic data in Australia during September has been much better than expected including strong consumer and business confidence numbers and the August jobs data released last week.

Reflecting the better data, the economics team at CBA have this morning revised higher their forecast for Australian GDP. Q3 2020 GDP has been revised higher from 0% to +2.0% while GDP for 2020 is expected to fall by -3.3% vs the previous estimate of -4.3%.

Technically, the correction from the .7415 high, now entering its fourth week has up until this point been unremarkable.

Providing the AUDUSD remains above trendline support .7250/30ish, the uptrend remains intact and keeps open the possibility of a retest of the .7414 high, before .7500c.

However, a break/close below support .7250/40 would warn of a retest of the recent .7192 low, before .7130, and possibly as deep as .7075/65.

Why AUDUSD remains becalmed during Septembers mini storm

Source Tradingview. The figures stated areas of the 21st of September 2020. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.

Important Notice:

Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.