Yesterday’s headlines got me thinking how much our heads are fixated with the idea of AUD and China.
Headlines like “AUD lower despite strong Chinese data” and “Chinese Stocks Climb With Aussie After PMI data”.
I ran some 2 year correlations on the fx rates and the Chinese PMI numbers as well as SHCOMP and I found that EUR has a disgustingly high correlation with China Non Man PMI. Voila.
The AUD/USD does not have much correlation with China at all for all our beliefs. In factm the strongest correlation lies with the S&P 500 and copper !
AUD
SHANGHAI COMPOSITE
0.112
CNY CURRENCY
0.013
EUR CURRENCY
0.605
S&P 500
0.686
CHINA PMI MANUF
0.225
CHINA PMI SVCS
0.23
CHINA PMI OUTPUT
0.225
COPPER
0.545
* Correlation of 1 and -1 is the strongest.
So the correlation fixation comes from the strong correlation with copper which is in turn correlated with the FTSE Mining Index which is decently correlated to SHCOMP to a degree of 0.314.
Where does the AUD go from here ?
Technicals suggest a double bottom formation and a further rise up to 0.99 is possible in the next couple of months.
But as the month end approaches, we note that positions are lighter than ever with trading accounts scaling their shorts back to May levels. Commercial positions have also scaled lower.
I am itching to sell the AUD into month end. 0.9323 looking enticing as the 100 day m.a. support.
AUD Expectation Complacency
Yesterday’s headlines got me thinking how much our heads are fixated with the idea of AUD and China.
Headlines like “AUD lower despite strong Chinese data” and “Chinese Stocks Climb With Aussie After PMI data”.
I ran some 2 year correlations on the fx rates and the Chinese PMI numbers as well as SHCOMP and I found that EUR has a disgustingly high correlation with China Non Man PMI. Voila.
The AUD/USD does not have much correlation with China at all for all our beliefs. In factm the strongest correlation lies with the S&P 500 and copper !
* Correlation of 1 and -1 is the strongest.
So the correlation fixation comes from the strong correlation with copper which is in turn correlated with the FTSE Mining Index which is decently correlated to SHCOMP to a degree of 0.314.
Where does the AUD go from here ?
Technicals suggest a double bottom formation and a further rise up to 0.99 is possible in the next couple of months.
But as the month end approaches, we note that positions are lighter than ever with trading accounts scaling their shorts back to May levels. Commercial positions have also scaled lower.
I am itching to sell the AUD into month end. 0.9323 looking enticing as the 100 day m.a. support.
Debt ceiling, taper, and the new AUD government to raise the debt ceiling soon (http://www.businessspectator.com.au/news/2013/9/5/election/next-govt-will-have-raise-debt-ceiling-hockey). Expectations of rate cuts has whittled down to virtually zero in the next 12 months with the 1 year expectation index by CS running at just 0.06% which is the highest we have seen since 2011.
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