AUD – now Overbought at a Weekly Extreme

September 1, 2020 Leave a comment

I feel markets are at another acute point.
It’s not about doom but rather to position for the opportunity.

In this note, I’ll start with the AUD and USD.

Since Buying AUD in the depths of March 2020, I’ve been advising clients to sell AUD against the USD in a tiered fashion at 0.66, 0.69 and 0.71.

With a weaker USD, we have also seen a commensurate advance in commodity prices. Note the link ?

I’ve been banging on about overbought readings recently each time they were registered on the “daily” charts, BUT now, significantly, we are seeing “Weekly” extremes.

Please take a look at the AUD/USD chart below and my annotations within it.

It’s only the 10th time in past 18 years that we have seen this and it’s the first time in 9 years.

I’m not calling a crash and of course and 0.7750 is entirely possible but I want to identify that such extremes are not common. Buying AUD at this end of the pendulums arc warrants thought to the probability of mean reversion.

September 1, 2020
by Rob Zdravevski
rob@karriasset.com.auAUD Weekly

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Australia’s Inverted Yield Curve – Update

August 15, 2012 Leave a comment

Today, the RBA’s cash target and overnight rate is 3.50% compared to the yield on the Australian 10 year government bond of 3.33%.

The yield curve remains inverted. If the RBA cuts rates another 25 basis points to “un-invert” the curve, they risk a weakening of the AUD (which should be desired in order to make Australian exports competitive) as global capital will earn less on their carry trade and perhaps sending a signal that the economy actually needs a larger kick of stimulation that what was thought.

When I combine our observations in the credit markets, the analysis is suggesting (which is being confirmed with action seen Asian equity markets) that the short-term trends in the AUD and the ASX 200 are shifting into weakness.

It is worthy to note that the yield curve is close to being normal again.

At this stage, I view this short-term correction as an opportunity to accumulate selected Australian equities. I feel that the Aussie equities index (together with Shanghai) will see it’s low for 2012, a couple months earlier than the yearly lows that I anticipate to occur in the U.S. which surrounds the November period.

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