Monday, May 19, 2014

AUD/MXN jumps on Radar...

This chart of the Austrian Dollar against the Mexican Peso cross jumped onto my radar today.  Since December it has moved against trend from 11.40 in Dec ’13 to 12.30 in mid-Apr.  During that time, the currency cross has traded in a tight upward sloping band as housing in Australia has proven stronger than expected and Mexico’s economy, along with its northern neighbor, has failed to excite. 

The cross fell below the lower bound of the upward sloping trend line on Friday and falls again today.  A settlement below this trend line today would indicate a loss of momentum and possibly a more dramatic and immediate return to trend weakness.  

Longer term, this cross is expected to trade to 8 as Mexico benefits from a recovery in the States and Australia struggles to adjust to a more domestically centered economy with resource exports to China diminished by shifting economic policy there. 

The fall in this cross from November 2012 to August 2013 was dramatic and subsequently, there have been 2 distinct corrections.  The first lasted 3 months starting Aug ’13 and saw the Australian Dollar (AUD) appreciate by 11.5% to the Mexican Peso (MXN).  The second lasted 4 months where the AUD appreciated by a less spectacular 7.9%.  Both the speed and carry of AUD ascent against MXN were diminished in the most recent advance ending in April.  The momentum in this rather exaggerated correction toward AUD strength appears to have decelerated as referenced by the break of the upward sloping trend line. We may therefore rightly anticipate a growing likelihood for a return to the longer-term trend toward AUD/MXN of 8.0.   

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