Aussie Dollar Dragged Lower On Tariff Fears

As tensions between the US and China escalate, Australia sits uncomfortably in between its biggest export market and its largest investor.

Government data show that almost 30% of all Aussie exports are sent to China, while the cumulative amount of US investments in Australia is over $850 billion as of the end of 2017.

In addition, US overnight interest rates are now higher than Aussie rates for the first time in over 18 years, and the domestic current account deficit has swelled to 2.2% of GDP

This combination of factors leaves the AUD/USD vulnerable to a protracted down move over the course of 2018.

Investors looking to profit from a lower AUD/USD can buy the BetaShare ETF with the symbol: YANK.

YANK is an inverse ETF, which means the price of YANK increases as the AUD/USD trades lower. It also has a weighting of 2.5%, which means the unit price will fluctuate  by 2.5% for every 1% change in the AUD/USD exchange rate.

With a current price of $13.60, we calculate that the price of YANK will be near $16.50 as the AUD/USD returns to the January 2017 low of .7160.

BetsShare ETF: YANK

 

AUD Boosted By Last Week’s M&A Activity

Last week’s Merger and Acquisition activity was a key driver in the Aussie dollar’s move from .7510 to .7690.

Tuesday’s Westfield deal for AUD 32 billion combined with Zurich’s announcement that it will buy ANZ’s life insurance business for AUD 2.85 gave the local currency a bid tone for the week.

All together, the flow was about $9 billion of AUD/USD that needed to be bought to cover the hedging aspect of the M&A transactions. This was enough to push the AUD/USD to .7690 before offers capped the move.

With this buying support absorbed into the market, the technical picture in the AUD/USD looks to be weakening with the longer-term down trend the path of least resistance.

We see the next area of support in the .7565 area. A break of the December 11th low at .7510 could trigger a quick move back to the .7300 handle.

Some of the ASX stocks that would benefit from a lower AUD include: RHC, NCM, QAN and TWE.

Ramsay Health

Newcrest Mining

QANTAS

Treasury Wine Estates

 

Key Data Points For The Aussie Dollar

From a trading perspective, the main numbers to watch this week for the AUD/USD are the Chinese GDP and local employment data on Thursday.

According to the recent PMI readings, labor market activity has slowed and the headline jobs number is estimated to fall from 54,000 to 14,000.

Since posting a multi-year high at .8125 on September 8th, The AUD/USD has been largely driven by comments suggesting the RBA may join other G-7 central banks in beginning to raise interest rates.

If theses two data points show weakness, it’s reasonable to expect the RBA to keep its easing bias and the  AUD/USD to continue its downward trend.

Investors looking to profit from a lower AUD/USD can buy the BetaShare ETF with the symbol: YANK.

YANK is an inverse ETF, which means the price of YANK increases as the AUD/USD trades lower. It also has a weighting of 2.5%, which means the unit price will fluctuate  by 2.5% for every 1% change in the AUD/USD exchange rate.

With a current price of $13.00, we calculate that the price of YANK will be near $16.50 as the AUD/USD returns to the January low of .7160.

 

Aussie versus US Dollar

 

 

Ansell Gets A Boost From The Lower Aussie

Since posting an intra-day low of $20.30 on August 15th, shares of Ansell have traded 12% higher to reach $22.81 in early ASX trade today. 

The August low coincided with their FY17 earnings report. Part of that report focused on the level of earnings based in USD and how an stronger AUD could dampen results. 

The AUD/USD has now dropped over 5% since trading at .8125 on September 8th. As a result, ANN shares have pushed higher. 

We currently see ANN trading at 18X earnings and estimate FY18 EPS around USD .95 cents. 

As such, we consider ANN a good buy/write strategy up to $23.50 to increase cash flow and enhance portfolio returns. 

Ansell

 

ETF Watch: Aussie Dollar Pushed Lower After RBA Comments.

Comments included in the RBA minutes about the level of the Aussie Dollar were the catalyst for the 1.0% drop in the AUD/USD overnight.

The central bank doubled-down on their concerns that the recent rise in the currency has hindered exports and been felt in domestic consumption data.

Internal momentum indicators are pointing lower as the price support level at .7825 was broken in late NY trade.

Investors looking to profit from the AUD/USD trading lower can look to buy the BetaShare ETF with the symbol: YANK.

YANK is an inverse ETF, which means the unit price increases as the price of the AUD/USD decreases.

YANK also has a 2.5% weighting, which means a 1% change in the AUD/USD will correspond to a 2.5% move in the unit price.

The current price of YANK is $13.05. We calculate that when the AUD/USD trades back to the January low near .7300, the unit price will trade at $16.75.

BetaShare

 

 

RBA Preview: Aussie Dollar Still Trending Lower

The Reserve Bank is expected to keep the official cash rate unchanged tomorrow, ahead of the federal government’s budget next week. Over the weekend, fresh concerns emerged that China’s economic recovery might not be as strong as expected, which may also be included in the RBA’s statement.

The consensus is that the 1.5 per cent benchmark interest rate will remain on hold, but some analysts believe it could be raised in the next few months with the domestic economy more resilient than ­expected.

However, renewed signs appeared yesterday that China’s economic growth trajectory could prove more volatile in 2017 than first thought after a surprising fall in manufacturing output.

It’s our base case that the RBA still maintains an easing-bias, and that the next move on rates will be lower. As such, we expect to see a protracted move lower in the AUD/USD, with a medium-term target near the January low of .7150.

We have suggested that investors looking to profit from a lower AUD/USD can buy the BetaShare YANK ETF. This an an inverse ETF, with a 2.5% weighting, which gains value as the AUD/USD trades lower.

Chart – YANK ETF

AUD Slips Lower After Neutral CPI Data

Inflation in Australia remains flat, and below the lower end of the 2% to 3% RBA target band.

Many analysts were expecting an uptick in the CPI inflation reading to 2.3%, which could prompt the RBA to shift its neutral-bias to a tighter posture.

As a result, the AUD/USD fell to  a 3-month low of .7455 overnight. With the RBA meeting next week, any mention of a more benign inflation outlook would put more downside pressure on the Aussie.

Internal price indicators now point the the next support level at .7420 and a more significant target of .7365 over the near-term.

Over the last few weeks, we have been suggesting that investors look to buy the BetaShares YANK ETF to profit from a falling AUD/USD.

The YANK is an inverse ETF, with a 2.5% weighting. This means that YANK will gain 2.5% for every 1% drop in the AUD/USD.

The French Election

By the time the ASX starts trading on Monday, the results of the first round of the French Presidential election should be confirmed.

At 4pm Sydney time today, French citizens will begin casting their ballots in what has been one of the most contentious elections in its history, and where the future direction of the European Union could be in the balance.

From a market volatility perspective, the most positive result would be a large turnout for centrist Emmanuel Macron against any of the other three leading candidates.

The worst case scenario for the markets would be if Mr Macron doesn’t get enough votes to qualify for the second round of voting scheduled for May 7th.

Current polling shows that the most likely outcome will be Mr Macron running against the anti-EU candidate, Marine Le Pen, in the second round of voting.

In this case, the market reaction will be determined by the size of the margin between these two candidates.

Australian Jobs Growth Data

Full-time jobs growth has slowed since 2013.

Slowing in full-time jobs growth is primarily due to job losses in the mining and manufacturing sectors with full-time job losses concentrated in the mining-dominated states of WA and Qld.

More recently though, full-time jobs growth has also reportedly stalled in NSW.

The latest employment data reported a loss of 44.8k full-time jobs in January, offset by a 58.3k rise in part-time jobs.

Chart – AUD vs USD

 

PBoC Surprising Rate Hike

The People’s Bank of China (PBoC) surprised the market by tightening monetary policy on Friday for the first time in almost 6 years.

On the first day back from the Lunar New Year Holiday, the PBoC increased the cost of borrowing across their short-term curve from 1-month to 2-years. This move also raised the overnight deposit rate from 2.75% to 3.10%.

A rate hike on the first working day after a holiday signals the start of a different policy direction away from Central bank stimulus and towards more fiscal and domestic demand policy measures.

With Chinese factory orders rebounding after several years of deflation, Friday’s move reflects  the PBoC’s determination to rein in leverage which has seen rapid expansion in the bond and property markets.

As a result of the higher rates, the Chinese Yuan traded to a 4-month high of of 6.79  against the US Dollar into the weekend.