The Australian budget was released earlier and there is somevolatility. Joe Hockey’s first budget lays out spending cuts and structural changes to the federal budget and raise some taxes on the rich. The difficulty here is that the spending trajectory of the economy is reliant on a resources boom continuing but that boom has run out of a lot of momentum.
This means the sums no longer add up in Canberra and measures must now be taken urgently to correct the budget deficit. Living in Ireland this story sounds very familiar where we had a property boom and a level of government spending that relied on it continuing indefinitely. Then when the rug was pulled out and the banks collapsed the budget deficit became enormous…..and the rest is history, Troika, IMF etc.
I certainly wound not wish that on Australia but politically they won’t want to plug the whole in the budget deficit all in one year so this story will continue. There is some worry that tax rises and spending cuts will dampen consumer demand and hurt the economy. So my fundamental view is that AUDUSD goes lower! Technically the previous lower top comes in at 0.9752 and recently we have attempted to put in a new lower top by 0.9460 which if threatened I think a close above that level only delays the outlook.
Indeed while the daily trend has been in a rising channel since 0.8659 in January, I am viewing this as an oversold bounce in an otherwise weekly/monthly downtrend that began a year ago from the lofty heights of the 1.04-1.05 region. Position traders may wish to consider looking for opportunities to take a short position on this larger time frame. Traders of all timeframes may wish to keep an eye out for news driven overbought/oversold conditions. –
Guest post by Gary Corney – www.fxlight.co
