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groundzero

29,081 Posts.

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31/07/16

18:08

Post #: 18410963
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Originally posted by sharks37 ↑

Hi @groundzero

To answer your question I would have to have a view on what's going to happen in the future, and that view would have to be more credible than Morgan Stanley's (meaning not only do I not know, but I don't believe Morgan Stanley can predict it either - they get it wrong just as much as anyone else).

What I will say in my best effort to answer your question is this:

1. The RBA is still in an easing cycle, meaning speculation amongst financial observers is that the RBA will if anything either leave rates where they are or cut rates here further over the coming 12 months (I haven't heard anyone mention the RBA may increase rates in the coming 12 months). Economic growth and jobs are still an issue here (hence the saturation message of "jobs and growth" by the libs during the election campaign). The expectation of possibly further easing would have a downward pressure on the AUD.

2. The US Fed has telescoped to the market a potential tightening of rates. Despite what perma-bears repeat ad nauseum most economic indicators in the US have trended in a positive direction over the last several years. They adjusted rates upward earlier this year for the 1st time in many years. The US Fed have deferred further increases to date, but their language is when not if rates will increase. Increasing rates, or the prospect of that, will maintain upward pressure on the USD.

3. There are observers such as Morgan Stanley who will give their view on what will or should happen. They are very knowledgeable people but they are not the decision-makers - only the US Fed is the decision-maker on the question of US rates (and central banks the world over are very fierce about maintaining the independence of their decision making), so I tend to believe the US Fed over any 3rd party commentator such as Morgan Stanley.

4. In the meantime, issues like China growth earlier this year, oil price slump and Brexit have all been thrown at the market (as excuses imo as to why the market should go down) and yet the US markets are setting all-time highs, and other markets are following (even our market is making a feeble effort to follow, lol). Not to mention, any time any potential black swan event gets thrown at the market what do many view as one of the safe havens to flock to? Gold, treasury bonds and of course USD...

So summing all the above, there appears still to be some downward pressure on the AUD due to possible rate cuts here and economic outlook (although the current commodities rally is an opposing factor here), while in the US if anything the pressure on the USD will be upwards. It is therefore difficult to see much more upside to the AUD this year while there is the possibility of some downside.

Looking at the weekly chart of the AUD we have now seen a low put in in January, followed by a higher high in April and a higher low in May. I would change my view about the end of the year if price broke the April high making a new higher high and confirming a new bullish trend. But I would not change my (technical) view on that until that new higher high occurs.

Hope the above helps.

Cheers, Sharks.

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Hi Sharks,
WOW! That is pretty impressive, mate. I read and re-read for over an hour till I got my head around it all. I really appreciate you putting that together for me.
I did a one night trading course back in 2007, but it was pretty basic and never prepared one for the complex realities that can affect the currency markets overnight, and I never took it up. Actually, I was talked out of it by a guy I knew then who had been a currency trader for one of the banks for 13 years. He could probably tell I was too dumb, lol.

So from your summary, I gather my best move would be to buy my travel money now or very soon, in $US.......even for the European leg. I dont know the fundamentals thereof, but I'm sure the Euro wont appreciate much against the $US, the state the EU is in.
Then again, I do realise that one major geopolitical event could upset the apple cart at any time.
Thanks again for putting that together for me...very interesting and helpful.

cheers
GZ

Price at posting: 1.3160 Sentiment: None Disclosure: Not Held
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