On the back ropes, PM Turnbull ‘turns bear’ where AUD is concerned

Another day, another leadership challenge for Australia’s PM Malcolm Turnbull, leaving AUD crosses worse for wear.

A second leadership vote could come as soon as tomorrow (5am GMT) if Turnbull receives a letter requesting a vote with 43 signatures on. The consensus is for Turnbull to be ousted, which puts Australia on track for its sixth PM in ten years. That’s quite extraordinary given that Australia haven’t had a recession for 26 years and places their PM per year ratio above crisis-stricken Italy and Greece. Regardless, it’s having a suppressive effect on AUD in general and AUD/USD could be setting up for another crack at 72c.

We can see on the daily chart that AUD/USD remains within an established bearish channel. Furthermore, a lower high failed to test the upper trendline to suggest bearish momentum is increasing on this timeframe. Coupled with a bearish inside day yesterday (also the narrowest range over seven bars) and subsequent bearish range expansion, today’s break lower is constructive of another bearish leg in our view.

A re-test of 0.7200 is not out of the question, especially since USD is regaining strength following hawkish FOMC minutes, gridlocked trade talks between US and China and inflows ahead of the Jackson Hole symposium. Although we could see this break towards the May and December 2016 lows around 0.7145/60.

Zooming into the four-hour chart, two bearish pinbars marked failed attempts to break higher before breaking decisively beneath 0.7334 support. Given the lack of compression and potential for a leadership spill tomorrow, we’ll observe for now but could consider a short trade below 0.7334 if conditions allow.

 

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