Kick Them While They're Down: AUD Lower On Weaker Home Loans Data

When it rains it certainly pours. Just ask the Australian Dollar, which has been heavily battered, trading from more than 5 cents premium from the USD to more than a 5 cent deficit, all within 2 months. Fundamental news hasn’t been encouraging either, with GDP data coming in slightly lower than expected last week. Private expenditures are decreasing sharply, and various leading indexes showing slower growth rates. Today’s Home Loan growth joined the long list of disappointments, coming in at 0.8% vs the 2.0% expected with the previous month’s 5.2% revised lower to 4.8%. NAB Business confidence continues to remain negative at -1, while Business Conditions (current) stands at -4. Investment Lending growth has also slowed to 1.1% vs 1.4% previous. The bad news just keeps coming, and it will take an extreme optimist to bet his entire fortune that Thursday’s key employment data will be much better than expected.

Hourly Chart
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The slew of negative data pushed AUD/USD below 0.94 and touched 0.938 briefly, close to the last level of support (see Weekly Chart below) that is holding bears at bay. Despite price bouncing off 0.938 and is currently trading higher above 0.94, overall pressure remain bearish. Compared to its geographical counterpart NZD, the rebound in AUD/USD that happened during US trading session yesterday is less bullish with price unable to even reach Friday’s Closing levels, much less break it as what NZD/USD accomplished. Despite this, there is still some hope for a bullish correction to test 0.945 or potentially the interim resistance at 0.948. Stochastic readings appears to be forming an interim trough above the 20.0 Oversold level which suggest that a short-term bull cycle may be possible from here out. However noting the fact that previous Stoch troughs and peaks are both getting higher, but price is getting lower, the divergence suggest that counter-trend signals may need to be taken with a pinch of salt.

Weekly Chart
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Nothing much can be said from the weekly chart, which has seen the 4 latest candles straddling the descending Channel Bottom consistently. Even as we approach the final vestige of support, there is no evidence of bearish momentum decreasing from price action per se, but Stochastic readings are slightly bullish with Stoch line flattening and looking to cross the Signal line. However, such “bullish” reading from Stochastic may not be reliable as AUD/USD is in an incredible bear trend. Price has not seen more than 4 consecutive weekly decrease in the past few years and hence we need stronger confirmation signals for signs of reversal, not an ambiguous Stoch trough which tends to be wrong during strong trends (even though Stoch reliability is definitely much higher on longer timeframes as compared to shorter time frames).

With employment data coming in on Thursday (Wednesday 9:30pm EDT), we could see price potentially breaking the 0.938 – 0.94 support if the news is worse than expected (if the level hasn’t been broken already). Even though the likelihood of a better than expected print is slim, should data be stronger than expected, it is a given that price will certainly rally, with magnitude and length of time of increase the only questions in doubt. With overall bearish pressure, the possibility of bulls holding on to their gains are low, and the converse is more likely – where Bears seek to sell into rallies. A stronger print may simply delay the inevitable, and should any recover rallies fail to break 0.96, it will not be surprising to see bears coming back stronger with a vengeance seeking for blood below the multi-year support line.

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