AUD Respects Support, Rally Back to Ascending Channel

By: Eddy Peng Jun 26, 2017
The Australian dollar halted the short-term descending momentum for four consecutive days, and rallied 0.35 percent to $0.75650 against the U.S. dollar. It’s currently rising with following an ascending channel, depicted as chart 1, started from early May where the reversal occurred. In a background of decreased real wages in the first quarter and the developed world’s highest debt-to-GDP ratio, consumers are reducing their cash for a rainy day, in which their savings levels have more than halved in five years. The rising cost of living intensifies the squeeze, with news that electricity prices are climbing as much as 20 percent in New South Wales next month. As consumption accounts for more than half of gross domestic product, the highly indebted can be more sensitive to declines in income, which hence has negative impacts on consumer spending. According to BIS (Bank of International Settlement), Australia’s household debt to GDP ratio has jumped almost 15 percent points in four years, reaching as high as 123.1 percent in 2016 just after that of Switzerland. As the central bankers’ bank, BIS said that the higher speed of debt than GDP growth over prolonged periods is a “robust early warning” signal of financial stress, while rising household debt boosts short-term consumption. ACY-Developed-countries’-household-debt-to-GDP-260617 AUD Respects Support, Rally Back to Ascending Channel

Chart 1: Developed countries’ household debt to GDP

There is a problem in Australia that the record-low interest rates allow buyers to borrow large amounts of money, which would boost household debt further and continue to push real estate market, especially in Sydney and Melbourne which attract enormous investment from Chinese buyers. Regarding worries over high level of debt from policy makers, the bank regulator is prompted to enforce measures to rein in riskier mortgages and strengthen lending standards, when the RBA (the Reserve Bank of Australia) noted in April that a third of mortgage holders had either no buffer or not enough of one to cover a month’s repayment. The borrowers with high risks tend to hold newer loans or come from lower-income and lower-wealth households. Aussie dollar climbed 0.28 percent to US$0.75813 as of 12:50 p.m. in Sydney. Technically with the bullish Relative Strength Index of 58.3327, the AUD/USD is consolidating in a developing ascending price channel. With a sign of rising tendency, it likely continues to rally and move in this price channel. In the event that the AUD/USD edges higher, traders should first watch for the pair breakout above Jun 14th’s high of 0.76354. Alternatively if prices reverse lower, the AUD/USD must first break beneath the lower channel line, then test last Friday’s low of 0.75361. ACY-AUDUSD-Daily-260617 AUD Respects Support, Rally Back to Ascending Channel

Chart 2: AUDUSD Daily

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