The Aussie Dollar rallied strongly off support at $0.96 against the greenback, on the back of strong GDP numbers. Expect a test of the declining trendline around $1.02. A peak below zero on 63-day Twiggs Momentum, however, would warn of a strong primary down-trend.
Be careful what you measure!
Australian Real GDP may have grown by 1.3 percent for the first quarter, but as Stephen Koukoulas points out: Nominal GDP (before adjustment for inflation) only grew by 0.3 percent. The cause of the Real GDP surge is a sharp fall in the GDP price deflator, used to adjust for inflation. Falling prices may be welcomed by the consumer but they warn of a deflationary contraction — as in 2008/9 when nominal GDP fell by 5.0 percent.
In the long-term, the Australian Dollar normally follows commodity prices. At present the CRB Commodities Index is falling sharply and the Aussie is likely to follow.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He founded PVT Capital (AFSL number 546090), which provides income and growth strategies to wholesale clients.
Colin also co-founded Incredible Charts and writes the popular Patient Investor newsletter.
Using a top-down approach, Colin identifies macro trends in the global economy and then combines fundamental and technical analysis to evaluate opportunities in sectors that stand to benefit.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
