My view on the AUD

17 January, 2018
by Rob Zdravevski

The AUD is trading at 0.7980 and I feel that the current short term uptrend in the AUD is stretched.
Albeit it is a strong trend and still intact, the AUD/USD cross is overbought on many technical indicators. I expect a regression to its short term daily mean, which is approx. 0.7750;
before it resumes its rising trend.
Should the AUD close this week above 80 cents, then the chance of a pullback to 0.7750 weakens and I’ll look for it to test 0.8260, 0.8350 and then 0.8550.
Whereas a break below 0.7530 would signal the end of the uptrend and thus I’d call it a trend reversal.
The correlation of CRB (Commodities) Index to AUD is also high. Currently the CRB and the Canadian Dollar (CAD) are both exhibiting the similar trends, moving average and other technical traits as the AUD/USD cross.
Interestingly, I wrote the following to a client who asked for my view about the Aussie on Dec 15, 2017.
“It’s starting to form a new uptrend, albeit its yet to be confirmed as a strong trend yet.
With its current price of 0.7670, its initial target is 0.7770 and it breaks that then I expect it to test 0.7900
A weekly close below 0.7610 would nullify this view as it would resume a test of the 0.7500 level”

Not new highs for everyone

In a contrast to the Nasdaq hitting new highs and the fervour behind technology stocks, one of the giants of making the internet “work” and a former darling of the 1990’s tech boom; Cisco Systems (CSCO) is seeing its stock price ONLY NOW climb back to 16 year highs which were last seen in 2001. But don’t feel sorry for CSCO’s price, its market capitalisation today is more than 30% higher than the Commonwealth Bank of Australia.

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Still Long China

In March 2016, we made a suggestion that making an investment in the Shanghai equity index had attractive probabilities and was an equally such proposition.

Since then, its total return has been between 19% – 25% (depending on the currency of measure) as displayed in the image below. This means an average of more than 1% per month for the past 18 months.

We think this has been a more than adequate return when considering the amount of risk we were taking and when comparing it to other alternatives including investing in cash or fixed income.

Furthermore, the Shanghai Composite Index was trading at an “oversold” levels which we hadn’t seen for many years.

Interestingly, whilst many major equity markets power on to new all-time heights, the Shanghai Composite is still 50% below its peak of 10 years ago.

I would like investors to ponder what the Chinese stock market will look like in 20 years time.                                                                                                                                                                      

More Hamish Douglass insights

Courtesy of the 2017 Switzer Listed Investment Conference, held on August 31, 2017.

It’s terrific to be able to continually learn from accomplished money managers such as Hamish Douglass

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