AUD rally looks overextended
The recent rally in the Aussie dollar (up 13% from mid-Jan to mid-March) is overextended on a number of measures: Net speculative positioning has moved from markedly net-short to net-long; medium term AUD models are back on SELL, and price action is technically poor. The AUD looks set to retest its 200-day moving average, and given the backdrop of the models, break below that level. Australia’s economy remains vulnerable on a number of fronts: Its current economic expansion, which began in the 1990s, is long in the tooth and has recently been prolonged/underpinned by inflows of capital, a credit boom, rapid house price gains, a commodity super cycle and overreliance on China. In those respects, Australia’s economy has become imbalanced and is now vulnerable. Also of note is the flattening of Australia’s yield curve; the slowdown in Leading Economic Indicators; shrinking car sales (Y-o-Y); and large/growing current account deficit.
Longview Economics, founded in 2003 by Chris Watling, is an independent research house based in London, providing three distinct yet interrelated groups of research products: Short and medium term market timing; Long term global asset allocation...