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 co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
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.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.