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ASX tests 200-MA as earnings roll in

Daily chart: AUS200. Black line: 200-MA. Green: 5-EMA. Blue: 20-EMA. Purple: 50-EMA. Chart source data: Metaquotes MT5.

ASX 200 futures (AUS200) tested the 200-day moving average (black line) overnight while European stocks gained and US equities saw rotation from growth to value stocks.

The 200-MA is a critical level for equity markets. Many traders consider it a buyers’ market if price is above and a sellers’ market below. While major US indices (NAS100, US500) and even Germany’s DAX (GER30) have staged strong recoveries, the Australian benchmark has fallen behind. So as the AUS200 navigates domestic earnings season as well as increasing global risk appetite, do watch the 200-MA. A daily close above the popular indicator would be a bullish sign and could shift up the dynamics of this slower market.

The ASX opened higher this morning after gold’s biggest daily selloff in seven years while Wall Street saw some rotation from growth to value stocks. The trading day kicked off with an earnings report from Australia’s biggest bank CBA, which revealed an H2 cash profit below consensus expectations and a 98¢ dividend. The AUS200 has moved lower today, with gold producers falling alongside the precious metal’s largest daily sell-off in seven years.

The earnings season runs through to the end of the month - and it could be a bumpy ride with expectations it could be the worst on record. Whichever way the index moves, once the reporting period is over, investors will be hoping the worst is over. All the while, I’ll be keeping my eye on that 200-day MA to see if this market takes a bullish turn.

Sean MacLean

Research Strategist

AUDNZD shrugs off kiwi unemployment beat

AUDNZD is moving back into its higher range, approaching multi-month resistance around 1.0830. The Australian dollar has gained despite the RBA’s downward revision of its economic outlook yesterday. The currency continues to be traded as a global risk proxy more than a response to domestic affairs.

Victoria’s lockdown has cast more uncertainty over Australia’s economic recovery. The RBA yesterday revised its unemployment forecast, which it now expects to reach 10 percent. Its expectations for an economic bounceback in 2021 has been revised down from a seven to a five percent rebound. The central bank also announced it would ramp up its QE program, purchasing more Australian government bonds to bring rates back in line with targets.

Despite a more cautious central bank, the AUDNZD pair is partly a story of central bank divergence. The RBNZ is relatively more dovish. Its QE program is currently capped at NZ $60bn and has asked domestic banks to prepare for the possibility of negative interest rates next year. The central bank has made clear more easing is possible as required.

New Zealand unemployment printed lower than expected this morning, falling to 4% from 4.2%. Consensus expectations had been for an increase to 5.8%. AUDNZD fell briefly on the unemployment beat from above 1.08 to 1.0775 but quickly reclaimed the losses, with an increase in underemployment as well as pandemic wage subsidies likely masking a higher jobless problem in New Zealand.

Meanwhile booming commodity prices continue to support the Australian dollar.

The kiwi has in fact gained on the day so far (NZDUSD up), but AUDSD is gaining at an even faster pace, pushing AUDNZD towards resistance. So will it break higher this time and begin a move into 1.09, or reject the resistance level and sell off?

Sean MacLean

Research Strategist

AUDCAD - exhausted bull trend or a buying opportunity?

Risk aversion kicked in briefly last week and caused a weaker Australian dollar, with a pinbar reversal candle appearing on the AUDCAD daily chart. The bearish signal was followed by a further selloff Thursday but markets settled on Friday, finding support around 0.95150, with the daily chart now posing the question: is this an AUDCAD buying opportunity or is that bull trend exhausted? Here’s why I like AUDCAD.

Rather than the typical trade of Australian dollar in USD terms, I like AUDCAD because it pits one commodity currency against another. AUD price action is largely driven by commodity prices like iron ore, whereas the CAD is a petrocurrency and is largely driven by Western Texas crude (XTIUSD) prices.

From that perspective, we see a booming commodities market where iron ore has risen almost 10% this month alone. Great news for the AUD, the world’s largest iron ore producer, which is also due to pick up business Brazil has lost due to mine closures during covid outbreaks.

But it seems to be a commodity boom that’s leaving oil behind as lockdowns keep millions of people at home and prevent travel. XTIUSD futures have risen a touch this month but have been mostly flat around US $41 per barrel.

Wednesday’s bearish candle on AUDCAD fulfilled its prophecy with a subsequent sell-off on Thursday, but does Friday’s bullish pinbar candle suggest the bull trend is ready to resume? The pair has found some buyers early in the session this morning. Whatever your view, the commodity recovery is worth considering when trading AUDCAD.

Sean MacLean

Research Strategist

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