AUD/CAD
A Fundamental Positive: According to the latest National Australia Bank Business Survey business conditions improved on the month led by increased profitability and an improved trading environment. Confidence among businesses rose 2 points to 6 in the month of September with the conditions figure adding 3 points to print at 11. Although considerably improved the latter still resides below the June 2004 peak of 17 points. In light of the optimistic figures, the survey noted a dip in employment factors.
Conditions have deteriorated as demand for labor and wages pressures have declined slightly with a subsequent dip in future orders as energy costs have risen on an annualized comparison.
Canadian Bulls Drive Cross: Increased speculation on forthcoming interest rates prompted traders to bid the counter in the AUDCAD cross as the interest rate spread looks to narrow slightly. Stronger than expected housing starts based on higher employment prospects and earnings sparked notions that Bank of Canada policy makers will opt to further increase interest rates as the eighth largest economy spurs ahead into 2006. In addition, a resurgence in crude oil prices contributed to Loonie strength, rising on the session.
Technically Speaking: Some retracement looks to have overcome the cross, albeit momentarily, as the currency may have established a near term bottom at the intrasession low. At this point, any tests to the upside looks to include the 23.6 percent fib at 0.8870, previous support.
NZD/USD
In Similar Fashion: Much like the Australian survey but more pessimistic, economic prospects were slightly to the downside in the New Zealand economy according to the New Zealand Institute for Economic Research Inc. Fewer companies were reported likely to hire workers or invest capital in further plants and machinery in the near future bolstering the notion that growth is expected to slow in the region. This is against the current consensus that priced in the probability of further interest rate hike decisions. Meeting October 27th, Reserve Bank Governor Alan Bollard is expected to raise interest rates yet again to curb inflation, bringing the benchmark to 7 percent.
Technically Speaking: Currently trading at the intraday low, the price action looks to break near term support and lend to further downward selling pressure. In the event of a bounce here, the first test would certainly take place at the 23.6 percent fib from the two day move at 0.6935.
AUD/USD
When Glenn Speaks, Traders Listen: Although an earlier business survey shed a positive light on the Australian economy, traders pared back Aussie interest as future orders and employment prospects look to potentially thin out in the near term. Additionally contributing to the mild sell off was commentary by Deputy Governor Glenn Stevens on the current condition of the economy. Warning that inflationary pressures look to rise in the third quarter, Stevens focused more concern over inflationary effects on global demand. The deputy governor further mentioned that continually rising prices would ultimately lead to crimped consumer demand and lessen overall foreign demand and production, adversely affecting raw material need. As a result, subsequent economies may be forced to raise interest rates to cope with inflation against the Australian economy which would ultimately leave rates at their current position if not consider rate cuts on a dip in productivity.
Technically Speaking: Looking to consolidate, the Australian dollar major has seeming established a temporary bottom near the session low. Any further moves lower would ultimately reestablish near term support with upside tests at the 23.6 percent fib at 0.7536. Any further moves higher may be capped by the former support level at 0.7555.
Richard Lee is a Currency Strategist at FXCM.
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