Aussie gold stocks rally as the greenback strengthens

The Dollar Index rallied to test resistance at 95 in response to the latest Fed rate hike. Short retracement is a bullish sign.

Dollar Index

Spot Gold retreated to $1280/ounce. Penetration of the rising trendline warns of a correction to test primary support at $1250. A Trend Index peak below zero warns of strong selling pressure.

Spot Gold

Fortunately for Australian gold stocks, the Aussie Dollar broke primary support at 75, warning of a decline to 69/70 US cents. The Trend Index peak below zero warns of strong selling pressure.

AUDUSD

The weaker Aussie Dollar boosted local gold stocks, with the All Ordinaries Gold Index breaking through resistance at 5100. Follow-through above 5250 would confirm another advance but expect retracement to first test the new support level.

All Ordinaries Gold Index

Gold benefits from Dollar weakness

The Dollar Index encountered resistance at 95 and is now retracing to find support. Support above 91 would be bullish, while breach of 91 would see another test of primary support at 88.50.

Dollar Index

10-Year US Treasury yields are likely to face stubborn resistance at 3.0 percent until threats to the European Union emanating from Italy’s new populist government are resolved. Breakout above 3.0 percent would signal the end of the 3 decades-long secular bull market in bonds — and increase selling pressure on gold.

10-Year Treasury Yield

Spot Gold, benefiting from the weaker Dollar, respected its rising trendline. Recovery above $1300/ounce would suggest another rally, while crossover of the Trend Index above zero would strengthen the signal.

Spot Gold

Australia’s All Ordinaries Gold Index continues its struggle with resistance at 5100, while the Aussie Dollar holds above support at 75 US cents. Penetration of the rising trendline at 4950 would warn of a correction to test primary support at 4600. Breakout above 5100 remains more likely, with a rising trend Index indicating moderate buying pressure.

All Ordinaries Gold Index

The Australian Dollar met resistance at its descending trendline, around 76.75 US cents. Expect another test of primary support at 75. If a Trend Index peak forms below zero, that would warn of strong selling pressure. Breach of primary support at 75 would signal a decline to 69/70 US cents — and strong demand for Australian gold stocks.

AUDUSD

Gold benefits from Dollar weakness

The Dollar Index encountered resistance at 95 and is now retracing to find support. Support above 91 would be bullish, while breach of 91 would see another test of primary support at 88.50.

Dollar Index

10-Year US Treasury yields are likely to face stubborn resistance at 3.0 percent until threats to the European Union emanating from Italy’s new populist government are resolved. Breakout above 3.0 percent would signal the end of the 3 decades-long secular bull market in bonds — and increase selling pressure on gold.

10-Year Treasury Yield

Spot Gold, benefiting from the weaker Dollar, respected its rising trendline. Recovery above $1300/ounce would suggest another rally, while crossover of the Trend Index above zero would strengthen the signal.

Spot Gold

Australia’s All Ordinaries Gold Index continues its struggle with resistance at 5100, while the Aussie Dollar holds above support at 75 US cents. Penetration of the rising trendline at 4950 would warn of a correction to test primary support at 4600. Breakout above 5100 remains more likely, with a rising trend Index indicating moderate buying pressure.

All Ordinaries Gold Index

The Australian Dollar met resistance at its descending trendline, around 76.75 US cents. Expect another test of primary support at 75. If a Trend Index peak forms below zero, that would warn of strong selling pressure. Breach of primary support at 75 would signal a decline to 69/70 US cents — and strong demand for Australian gold stocks.

AUDUSD

Falling bond yields fail to tame Gold bears

10-Year Treasury yields retreated below 3.0 percent after threatening a bond bear market for the past week.

10-Year Treasury Yield

Breakout above 3.0 percent would complete a large double bottom reversal in the secular down-trend.

10-Year Treasury Yield

Rising bond yields would be expected to weaken demand for gold as the opportunity cost of holding precious metals increases.

The other major influence on gold prices, the Dollar, continues to strengthen. A strong Dollar would weaken the Dollar-price of gold.

The Dollar Index is rallying to test resistance at 95. Penetration of the long-term descending trendline in April suggests that a bottom is forming. Bullish divergence on the Trend Index indicates buying pressure.

Dollar Index

Spot Gold retraced to test the new resistance level at $1300/ounce — the former support level. The declining Trend Index indicates selling pressure and respect of the descending trendline would warn of a test of primary support at $1250/ounce.

Spot Gold

Australian gold stocks fared better, with the All Ordinaries Gold Index finding support at 4950 and the rising Trend Index signaling buying pressure. Respect of the long-term trendline would confirm another primary advance.

All Ordinaries Gold Index

The reason is not hard to find. The Australian Dollar is at a watershed, testing primary support at 75 US cents as the greenback rallies. A Trend Index peak below zero would warn of strong selling pressure. And breach of primary support would signal a decline to 69/70 US cents.

AUDUSD

Offering a potential bull market for Aussie gold stocks.

Gold stocks retreat

The Dollar rally continues, with the Dollar Index heading for a test of resistance at 95. Penetration of the long-term descending trendline suggests that a bottom is forming. Bullish divergence on the Trend Index indicates buying pressure.

Dollar Index

But rising crude prices still threaten to weaken the Dollar.

WTI Light Crude

Spot Gold broke support at $1300, warning of a test of primary support at $1250/ounce as the Dollar strengthens. The declining Trend Index indicates selling pressure.

Spot Gold

A weakening Australian Dollar continues to test support at 75 US cents as the greenback rallies. Breach would offer a long-term target of 69/70 US cents.

AUDUSD

The weaker Aussie Dollar offered some respite for local gold stocks but the All Ordinaries Gold Index is retracing to test its new support level at 4950/5000. Respect of the rising trendline would confirm a fresh advance and long-term target of 6000.

All Ordinaries Gold Index

Aussie gold stocks breakout

The Dollar rally continues, with the Dollar Index headed for a test of resistance at 95. Penetration of the descending trendline suggests that a bottom is forming. Bullish divergence on the Trend Index indicates buying pressure.

Dollar Index

But rising crude prices weaken Dollar demand.

WTI Light Crude

Despite the Dollar rally, Spot Gold found support at $1300, with a long tail indicating buying pressure. Recovery of the Trend Index above zero would confirm.

Spot Gold

But Australian gold stocks are running ahead. Breakout of the All Ordinaries Gold Index above resistance at 5000/5100 signals a fresh advance with a long-term target of 6000.

All Ordinaries Gold Index

Helped by a weakening Aussie Dollar, testing support at 75 US cents. Breach of support would offer a long-term target of $0.69/$0.70.

AUDUSD

ASX 200 bearish consolidation

The big banks fell sharply on news of a new levy on bank liabilities in the latest budget. At this stage the ASX 300 Banks Index merely shows a secondary reaction. Breach of 8500, however, would signal a primary trend reversal, offering a medium-term target of 8000*.

ASX 300 Banks

* Target: 8500 – ( 9000 – 8500 ) = 8000

Resources stocks compensated, with the ASX 300 Metals & Mining Index rallying to test resistance at 2850/2900. Breakout is unlikely given the weak lead from iron ore. Reversal below 2700 remains likely and would strengthen the bear signal for resources.

ASX 300 Metals & Mining

Iron ore formed a bearish consolidation above support at $60. Breach would offer a short-term target of $50*.

Iron ore

* Target: 60 – ( 70 – 60 ) = 50

Selling of the Aussie Dollar continues, with a medium-term test of primary support at 71.50/72.00 now likely.

Aussie Dollar

Consolidation of the ASX 200 above support at 5800 is a bearish pattern. Breach would signal a correction to test primary support at 5600*. Twiggs Money Flow still indicates long-term buying pressure and only a fall below zero would warn of a reversal.

ASX 200

* Target medium-term: 5800 – ( 6000 – 5800 ) = 5600

Will the RBA cut interest rates in May?

From Justin Smirk at Westpac:

The headline CPI surprised in Q1 falling 0.2% compared to Westpac’s forecast for +0.4%….. The annual rate is now just 1.3%yr compared to 1.7%yr in Q4.

The core measures, which are seasonally adjusted and exclude extreme moves, rose 0.2% compared to the market’s expectation of 0.5% rise…. The annual pace of the average of the core inflation measures is now 1.5% from 2.0% in Q4 (Q4 was unrevised) and is the lowest print we have yet seen from this measure.

From Jens Meyer at The Age:

Today’s weak inflation numbers are a game changer for the Reserve Bank that will trigger a rate cut, says JPMorgan head of fixed income and foreign exchange strategy Sally Auld.

The investment bank now expects the RBA to cut by 0.25 percentage points next week and to follow this up with a further 25 basis points cut in August, taking the cash rate to 1.50 per cent.

Smirk disagrees:

…..But low inflation, on its own, is not a trigger for a rate cut. Sure, it unlocks the interest rate door for the RBA should it decide it needs to walk through that door as the Bank would not have to wait for another CPI update before doing so. However, it does not mean that the RBA will cut rates! A rate cut is dependent on local economic conditions demanding a rate cut. With unemployment on a new downtrend this is not so at the moment and we suggest that the RBA is waiting to see a new weaker trend in domestic activity and employment before it would embark on such a strategy.

Source: Australian 14 CPI 2016 | Westpac

Source: Three reasons for the Reserve Bank of Australia to cut official interest rates in May

Australian Dollar during the 1997 Asian financial crisis

Performance of the Australian Dollar during the Asian financial crisis. The falling Dollar acted as a buffer, protecting the Australian economy from the Asian contagion.

AUDUSD 1996-1998

A similar 25% fall from today’s 72 US cents would offer a target of 54 US cents. No science to this. Simply speculation.

ASX 200 rallies despite weaker AUD

The Australian Dollar followed through below support at $0.8650, confirming a (primary) decline with a target of $0.80*. Declining 13-week Twiggs Momentum below zero strengthens the bear signal. Recovery above $0.8650 is unlikely.

AUDUSD

* Target calculation: 0.87 – ( 0.94 – 0.87 ) = 0.80

The ASX 200 respected support at 5300. Follow-through above 5450 would suggest a fresh advance. A 21-day Twiggs Money Flow trough at zero indicates short-term buying pressure. Reversal below 5300, however, would test primary support.

ASX 200

The ASX 200 Financial sector (ex-REITs) is the largest constituent of the ASX 200 index. 13-Week Twiggs Money Flow oscillating above zero suggests healthy buying pressure despite the Murray Inquiry’s likely call for increased bank capital [AFR]. The sector index successfully tested support at 7050, indicating another test of 7400.

ASX 200 Financial ex Property