Australia Outlook Updated

Neutral sounding Reserve Bank Australia comments after an unprecedented three rate hikes in consecutive meetings had helped encourage a wave of profit-taking that saw the Australian dollar lose about 6.4% against the US dollar in the first 3 weeks of December. However, over the past couple of weeks Australia has reported a series of stronger than expected economic reports, including building approvals, retail sales and a smaller than expected trade deficit. On Thursday, Australia reports Dec employment data. The consensus appears to around 10k, but the Street consistently under-estimated Australian job growth last year and the risk would be on a stronger number.

With today's gap higher, the Australian dollar has rallied 6.8% since a few days before Xmas. The gap itself could potentially be important. Gap theory suggests it is one of three kinds: a) an exhaustion gap after a brilliant rally suggesting a near-term reversal, b) a break away gap suggesting a near-term acceleration, c) a normal gap that is filled in the near-term. Two of the three suggest at least a near-term pullback. Prudence would argue against chasing it higher. The gap extends to last Friday's high near $0.9253. We would see a near-term pullback, ahead of the employment data as an opportunity to add on to the long AUD short NZD position we have recommended.
Australia Outlook Updated Australia Outlook Updated Reviewed by magonomics on January 11, 2010 Rating: 5
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