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A$ Rally Pauses

AUD

AUD/USD remains below the 0.6700 level. The pair was last around 0.6680/80, up from earlier lows in the 0.6660/70 region. Early session highs near 0.6725 remain intact. Note the simple 100-day MA comes in at 0.6701, so this may be offering some short-term resistance. The cumulative 4.2% gain through Thursday/Friday sessions from last week may also be generating some profit taking flows.

  • Cross asset signals are mixed. Yield differentials are down slightly, the AU-US 2yr back to -124bps, following hawkish Fed comments earlier. However, we still well above pre-US CPI lows from last week (-140bps).
  • In equities we down from best levels from a regional equity market standpoint, although HK/Chia related markets are still up. US equity futures are also lower by around -0.30-50%.
  • The Shanghai Composite Property Sub-Index is up around 2.5% at this stage, but this down from earlier highs (close to +5%). The chart below overlays this index against SGX iron ore futures prices. Iron ore prices are around $94/tonne, down from highs of $96/tonne earlier.
  • Both series are comfortably off recent lows, but well-down on earlier YTD highs. Further upside, particularly in iron ore, will boost the A$'s valuation appeal. The focus is likely to rest on how much traction China’s recently announced property support measures gain in stabilizing the sector.

Fig 1: Shanghai Composite Property Sub-Index Versus Iron Ore Futures

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AUD/USD remains below the 0.6700 level. The pair was last around 0.6680/80, up from earlier lows in the 0.6660/70 region. Early session highs near 0.6725 remain intact. Note the simple 100-day MA comes in at 0.6701, so this may be offering some short-term resistance. The cumulative 4.2% gain through Thursday/Friday sessions from last week may also be generating some profit taking flows.

  • Cross asset signals are mixed. Yield differentials are down slightly, the AU-US 2yr back to -124bps, following hawkish Fed comments earlier. However, we still well above pre-US CPI lows from last week (-140bps).
  • In equities we down from best levels from a regional equity market standpoint, although HK/Chia related markets are still up. US equity futures are also lower by around -0.30-50%.
  • The Shanghai Composite Property Sub-Index is up around 2.5% at this stage, but this down from earlier highs (close to +5%). The chart below overlays this index against SGX iron ore futures prices. Iron ore prices are around $94/tonne, down from highs of $96/tonne earlier.
  • Both series are comfortably off recent lows, but well-down on earlier YTD highs. Further upside, particularly in iron ore, will boost the A$'s valuation appeal. The focus is likely to rest on how much traction China’s recently announced property support measures gain in stabilizing the sector.

Fig 1: Shanghai Composite Property Sub-Index Versus Iron Ore Futures

Keep reading...Show less