09-11-2018: December Australian Dollar: U.S./China Trade War Makes China Less Able to Import More from Australia

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Point & Figure

Internal Progrm
Third System

Historic Range

Random Chart
Calendar Spread

Level Table
Other Factors

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What hurts the Chinese economy hurts Australia because Australia exports more to China than to anywhere else. Its nearby neighbor is a consumer of Australian mined metals, crude oil, and agricultural crops from Australia's commodity-based economy. Trade wars, even though not directly involving Australia, have a negative effect there in the current global economy.

Intermarket Analysis

We fed the Australian Dolar, the Canadian Dollar, and the British Pound into a neural network to get the following result:

Parabolic Chart

December Australian Dollar:

Parabolic Chart

Nirvana Chart

December Australian Dollar:

Initial Chart

News Analysis

The Australian Dollar fell to a 4-month low against the British Pound and a new low below 71 U.S. cents, while others are saying the Aussie could fall below U.S. 70 cents if Trump presses ahead with China tariffs. The American President is considering leveling an additional $267 billion in tariffs against China which considered a threat to the Australian Dollar. Why? China is Australia's main export customer. U.S. trade wars with China could hurt the Chinese economy which is already slowing, and thus reduce demand for Australian exports.

Some estimate a trade war could cost Australian households $470 billion over a decade. A substantial number of other countries could pile into the conflict and raise their tariffs byi 15%. Recently the Australian GDP showed improvement, suggesting the Aussie could bounce back if the trade war fears could be resolved, but if not the Australian GDP could wind up 2.4% lower than it would have been in the absence of the trade war. The present value of Australia's real inflation adjusted losses over the decade would be stimated at $364 billion. The present value of the loss in Real Household Disposal Income for Australia is estimated by KPMG at $474 billion (U.S.). Real household net disposable income is comminly defined as the sum of household spending on consumption goods as well as household savings, minus the change in net equity of households including superannuation. The measure has been driven higher in recent years by Australia's rising terms of trade, or the amount of goods that can be imported per unit of export goods. KPMG Australia chief economist Brendan Rynne said around 50,000 jobs would be lost and real wages pushed down by $16/week for the average worker. He said "Policymakers in Australia and other nations woudl be well-advised to resist the political pressure to impose or increase tariffs on goods imported from the U.S. and China as they seek new markets." Australian economists beliee the U.S. would be hit harder than Australia and face a year-logn recession if Trump goes ahead with his insane trade policies. Massive dislocations in global equity markets due to an all out trade war between the U.S. and China with 30% mutual tariffs would cause all to fall into "bear territory."

The Australian Dollar has lost 10% year to date as one of the worst performing currencies due to yield differentials and geopolitical risk. The fundamental outlook the Australian economy may improve in the near to medium term. That could cause an Aussie rebound. Net shorts in the Australian Dollar are at a near all-time high and could result in a short squeeze.

The Indonesian rupiah and the Indian rupee are also falling along with the Australian Dollar as if in concert. As a rout grips emerging markets, the Aussie, viewed as a barometer for global risk appetite, is also bearing the brunt of investor angst. It's being battered due to the economy's close ties to China and reliance on offshore funding. Austalia's growth is highly linked to Asia.

Funding in Austalia has been dented by tighter global liquidity on its banks, due to contagian fears from the financial turmoil in Turkey and Argentina. Australian banks have pushed up mortgage rates, making it less likely that the Reserve Bank of Australia will raise interest rates. Economic growth will be dampened.

Retail spending in Australia fizzled out in July.

Domestic political turmoil in Australia surrounded the future of Prime Minister Malcolm Turnbull. But as Scott Morrison won the post, the Australian Dollar rebounded a bit. Morrison is viewed as more moderate than other candidates. The fear was that a Liberal candidate would win and that would result in further downside for the Aussie near term.

Point & Figure Chart

 83.0I                                                                  R  9/10
     I CME - Dec-18 Australian Dollr ($100K/$.AD)  Cm.=0.03  Lim.= 2.6
     I                      X
     I          XO        XOXO
     I          XO        XOXO
     I          XO        XOXO
     I    X     XO        XO O
     I    XOXO  XO        X  O
     IX   XOXOX XO        X  O  X
     IXOX XO OXOXO        X  O  XO
     IXOXOX  OXOXO        X  O  XO
     I O O   OXO O        X  O  XOX XO
     I       OX  OX       X  OX XOXOXO
     I       OX  OXO      X  OXOXOXOXO
     I       O   OXO      X  OXOXOXOXO
     I           OXO      X  O     OXO  XO
     I           OXO      X        OXOX XO
     I           O O      X        O OXOXO
     I             O      X          OXOXO
     I             OXO    X            OXO
     I             OXO    X            O O      X
     I             O O  X X              O      XO
     I               OX XOX              O      XO
     I               OXOXOX              O    X XO
     I               OXO OX              O    XOXO
     I               O   OX              OX X XOXO
     I                   O               OXOXOXOXO
     I                                   O OXOX  O
     I                                     OXO   O  X
     I                                     OX    O  XO    X
     I                                     O     OX XOX X XOX
     I                                           OXOXOXOXOXOXO
     I                                           O OXO O OXO OX
     I                                             OX     X  OXOX
     I                                             O     O   OXOXO
     I                                                       OXOXO
     I                                                       OXO O
     I                                                       OX  O
     I                                                       O   O
     I                                                           O
     I                                                           O
     I                                                           O
     I                                                           O
Our computer tells us a non-conventional reactive approach works best for Australian Dollar on p&f charts. Therefore the above chart is taken as giving a buy signal.

Cyclical and Seasonal Factors

We are headed toward a cyclical low and a seasonal down period.

Cyclicals Cyclicals Seasonals

Internal Program

Our best-performing internal program is "%R". It is giving a buy signal.

Internal Printout 1 Internal Printout 2

Results of "%R" for Australian Dollar (blue lines = successful trades, red, unsuccessful): (Always in the market.)


Third System Confirmation

Our third system has triggered a sell signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)

Third System


The point value is $1,000. Initial margin on a single contract is $1,375. Use of options is not advised.

Historic Range

Scale trade buyers are entering the market for the long term in this price range.

Historical Chart

Commitment of Traders

Commitment 1

In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Blue is small speculators. Red is large speculators. Green is commercials. Large speculators with the best track record are getting increasingly-short.

Commitment 2

Interpretation of a Different Site Below (Their trader categories vary from ours):

Commitment 3

Volatility / Probable Range

FB 1 FB 2

The average volatility shown below suggests that a downtrend remains intact from the last volatility low point.

Range/Volatilitiy Chart

Possible Future Prices

Random Chart

Option Recommendation

Our option trade recommendation is to Buy (1) Australian Dollar March 72 Call and Sell (1) Australian Dollar March 71 Call @ .00500 to the sell side or greater.

o 1 o 2 o 3 o 4 o 5

Calendar Spread

What the Dec. - Jun. calendar spread suggests to us is that buying the near contract and selling the far one is at most times profitable, which we think is a sign that these futures may go flat in the long run. The best time to enter or leave the above spread is when it is at -0.20 or narrower selling the far as prices are falling and then buying the near, and exiting or entering when it is at +0.41 or wider buying the far as prices are rising and then selling the near. At this time, we appear to be at the sell the far, buy the near point.

Level Table:

Level Table

The path of least resistance is down.
 82.0|                                                                  R  9/10
 CME - Dec-18 Australian Dollr ($100K/$.AD)  Cm.=0.03  Lim.= 2.6
     |   <<<
 70.0|-A-B-C-D-E-F-G-H-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z----|----|-- TPO= 0.000
           1 1 1 1 1 1                                                
       9 9 0 0 1 1 2 2 1 1 2 2 3 3 4 4 4 5 5 6 6 7 7 8 8 9           9
       1 2 0 2 0 1 0 1 0 1 0 1 0 1 0 1 3 1 2 1 2 1 2 0 2 0           1
       1 2 6 0 3 7 4 8 3 8 1 5 2 6 2 6 0 4 9 2 6 1 5 8 2 6           0

Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary

Here's an intraday chart for a previous day ( 9/12 ).

Intraday Chart

                 Risk Versus Opportunity Report

              ADZ8    December Australian Dollar

                      High Price:  72.56
                   Current Price:  71.13
                       Low Price:  68.23

                            Risk: -0.041
                     Opportunity: -0.082

                    (O/R) Ratio =  2.028

Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis - 1
Parabolic Chart - 1
Nirvana Chart - 1
News - 1
Point & Figure + 1
Cyclicals - 1
Seasonals - 1
Internal System 1 + 1
Internal System 2 0
Third System - 1
Historic Range + 1
Commitment of Traders - 1
Range/Volatility - 1
Level Table - 1
Other Factors - 1
Total - 8
Place 10 December Australian Dollar on a Sell Watch with stoploss @ +2.63 below the get-in point when recent price is represented as "71.16".