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Besides all the exciting and potentially damaging political news flowing from China, we got some other surprising news that suggests growth in the region is likely worse off than many now believe.
The bad news came from the two major Western commodity-based currency nations in the region — Australia and New Zealand. This news may be confirming the technical picture for both currencies: Both appear vulnerable and could soon tumble. Let’s take a look …
Starting with Australia
I often refer to Australia as a satellite country of China given the inordinate amount of its growth driven by Chinese raw materials demand. The central bank there — Reserve Bank of Australia — cut interest rates by 50 basis points. Traders were expecting a rate cut, but only 25 basis points. The Aussie plunged on the news.
And here’s what Reserve Bank Governor Glen Stevens had to say:
“This decision is based on information received over the past few months that suggests that economic conditions have been somewhat weaker than expected, while inflation has moderated.
“In Australia, output growth was somewhat below trend over the past year, notwithstanding that growth in domestic demand ran at its fastest pace for four years.”
This almost sounds tame when you consider housing prices in Australia are starting to accelerate lower, unemployment is rising, and the latest Purchasing Manager’s Index (PMI) for both manufacturing and services are contracting!
Charts of the PMIs are below:
I don’t think it’s much of a stretch to say the latest deceleration in China’s economic growth is hitting Australia hard. And the Aussie is feeling the pressure, approaching a key support level — 1.0221 as shown in the following chart.
A breakdown below current daily support, suggests the Aussie could slip quickly to the mid- to low-90 cent level against the U.S. dollar should bad economic news continue to flow from the region.
Aussie Confirmed by the Kiwi
The Kiwi is the name currency traders use for the New Zealand dollar. The Kiwi got hit hard on Thursday on surprisingly bad employment news. New Zealand’s unemployment rate rose to 6.7 percent from 6.3 percent. Most analysts thought the unemployment rate would remain unchanged.
Economists are now expecting a rate cut by the New Zealand central bank when they meet in June. But traders aren’t waiting for June … they sold the Kiwi on Thursday. And it quickly sliced through a key daily chart support level and its 200-day moving average, as you can see below.
So how can you play this?
Based on the commodity-currencies in Asia, it appears economic growth is clearly decelerating. If this proves true, both the Aussie and Kiwi could have plenty of room left to fall against the U.S. dollar given that both currencies have enjoyed the “Asian risk premium” for years.
Best wishes,
Jack
{ 2 comments }
Hi Jack
You can also add that in Australia they have the most moronic administration in it’s history which is seeing the carbon tax costing jobs in one industry after another. Regards
Hey Howard im sorry that the aussies got stuck with the carbon tax IM GLAD ENOUGH PEOPLE STOOD UP TO THE OBAMA LEFT WING LIBERALS AGENDA in the U.S. In austrlia they were fooled by the left wing green party about global warming and the consequences will be horrible for australia in just a few yrs the carbon tax will decimate many industrys there , the aussies will be facing carbon taxes on everything . BY THE WAY WHERE DO ALL THE CARBON TAXES GO ???? In australia they have their most moronic administration in their history . And in the united states SO DO WE.