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ab

Fixed Income & FX Research
FX - Strategy

UBS Investment Research
FX Morning Adviser

Global

AUD Dependencies Exposed

29 November 2013
www.ubs.com/fx

Overnight news flow served reminder of the important role played by foreign
direct investment in supporting the Australian dollar – and the risks to the
currency if those inflows were to fade.
The currency impact of portfolio inflows have been a major talking point over
the past four years, in the midst of a clear diversification drive by the reserve
manager community. Direct investment has continued over that time too, but
has been somewhat less conspicuous.
That’s likely to change up ahead. Although the size of these direct inflows has
not changed much over recent years, now that portfolio inflows have slowed
down, the relative importance of direct investment has increased (Chart 1).
Clearly if inflows through both channels were to cool simultaneously then that
would amplify the risk of further Australian dollar weakness. We will be
looking to the Balance of Payments data due on Dec. 3 to offer the latest batch
of insight into flows during Q3.
Bloomberg also reported overnight that AUDUSD is now on track to close
lower for the sixth week in a row. That would be the longest (not necessarily
deepest) run of weakness since early 1997.
Is this significant? As chart 2 shows, the currency is no stranger to bouts of
sustained weakness like this. A run of five consecutive weeks of steady erosion
is not uncommon.
The key point though is that it does suggest that deeper questions are now
being asked about how long AUDUSD can stay on the rich side of fair-value.
We would stress though that the pattern does not always herald a sustained
period of further weakness immediately ahead.

Chart 1: Foreign Direct Investment becoming relatively more
important in supporting AUDUSD
75

Net Flows By Foreigners Into Australia

A$ (bn)

1.1

AUD inflow

50

1
0.9

25

AUDUSD
prev. occurrences of 5 consecutive
weeks of downside
AUDUSD

0.8

0

0.7

-25
-50
Jan-06

Chart 2: A good trading signal?

portfolio
Jul-07

Jan-09

Source: ABS, UBS FX Strategy

This report has been prepared by UBS

Jul-10

Jan-12

FDI

0.6
0.5
Jan-96 Jan-99 Jan-02 Jan-05 Jan-08 Jan-11 Jan-14
Source: Bloomberg, UBS FX Strategy

FX Morning Adviser 29 November 2013

FX Technicals
EURUSD

NEUTRAL

The pair extended its recovery and is held by strong resistance at 1.3627. A
close above which would be positive, opening the way to the next major 1.3832.
Support is at 1.3558 ahead of 1.3490.

USDJPY

BULLISH

As bullish conditions persist, there’s scope for further upside in the near-term to
test the resistance at 103.74 and then 105.75. Support is at 100.96.

GBPUSD

BULLISH

The pair continues to move higher and is trading within the striking distance of
critical resistance at 1.6381. A move above this would be further positive opening
1.6622. Support is at 1.6277.

USDCHF

NEUTRAL

Any further downside will find support at 0.9028. Only a close below this would
be negative. Resistance is at 0.9131 ahead of 0.9192.

AUDUSD

BEARISH

With the MACD below its zero line and momentum falling, there’s scope for
extension of the downtrend to the major support at 0.8890. Resistance is at
0.9204.

USDCAD

BULLISH

As bullish trend persists, our resistance focus is at the critical 1.0609. A close
above which would be an outright bullish trigger. Support is at 1.0571.

EURCHF

NEUTRAL

The important resistance range is at 1.2352 and 1.2376, a breach of which would
open 1.2415. Support is at 1.2277ahead of 1.2215.

EURGBP

BEARISH

There is a strong support at 0.8285 and a close below this would be a long-term
bearish development opening 0.8160. Resistance is at 0.8391.

EURJPY

BULLISH

The cross extends its bullish pattern of higher highs/lows and focus is on the
critical resistance at 140.99. Support is at 138.31.

*NOTE: The trend for each currency pair as defined in the table is determined by our proprietary model and is independent of our discretionary interpretation
of price action
Source: UBS FX Strategy

UBS 2

FX Morning Adviser 29 November 2013

Key Events
Country

Japan
Japan
Japan
Japan
Japan
Japan
Japan
UK
Australia
Australia
New Zealand
Japan
Japan
Japan
Germany
Germany
UK
UK
Sweden
Switzerland
Sweden
Sweden
Euro Area
Sweden
Sweden
Norway
Norway
UK
UK
UK
UK
Euro Area
Euro Area
Euro Area
Canada
Canada
Canada
China

GMT

23:15
23:30
23:30
23:30
23:30
23:50
23:50
00:05
00:30
00:30
02:00
04:00
05:00
05:00
07:00
07:00
07:00
07:00
07:00
08:00
08:30
08:30
08:30
08:30
08:30
09:00
09:00
09:30
09:30
09:30
09:30
10:00
10:00
10:00
13:30
13:30
13:30

Release/Event

Manufacturing PMI (Nov)
Overall Hhold Spending (Oct)
Jobless Rate (Oct)
Natl CPI (Oct)
Natl CPI Ex Food, Energy (Oct)
Industrial Production (Oct P)
Industrial Production (Oct P)
GfK Consumer Confidence (Nov)
Private Sector Credit (Oct)
Private Sector Credit (Oct)
Money Supply M3 (Oct)
Vehicle Production (Oct)
Housing Starts (Oct)
Construction Orders (Oct)
Retail Sales (Oct)
Retail Sales (Oct)
Nat'wide House Px (Nov)
Nat'wide House Px nsa (Nov)
Riksbank's Jochnick Speaks
KOF Leading Indicator (Nov)
GDP (Q3)
GDP wda (Q3)
ECB's Mersch Speaks
Wages Non-Manual Workers (Sep)
Current Account Balance (Q3)
Unemployment Rate (Nov)
Retail Sales W/Auto Fuel (Oct)
Net Consumer Credit (Oct)
Net Lending Sec. on Dwellings (Oct)
Mortgage Approvals (Oct)
M4 Money Supply (Oct)
Unemployment Rate (Oct)
CPI Estimate (Nov)
CPI Core (Nov A)
GDP Annualized (Q3)
GDP (Sep)
GDP (Sep)
Leading Index (Oct)

Frequency

UBS

Prev/Revised

Consensus

Actual

index
y-o-y
m-o-m
y-o-y
y-o-y
m-o-m
y-o-y
index
m-o-m
y-o-y
y-o-y
y-o-y
y-o-y
y-o-y
m-o-m
y-o-y
m-o-m
y-o-y

n/a
n/a
4.00%
n/a
n/a
n/a
n/a
n/a
0.40%
3.50%
n/a
n/a
n/a
n/a
0.40%
n/a
0.80%
6.50%

54.2
3.70%
4.00%
1.10%
0.00%
1.30%
5.10%
-11
0.30%
3.30%
7.30%
13.00%
19.40%
89.80%
-0.60%
0.30%
1.00%
5.80%

n/a
1.00%
3.90%
1.10%
0.20%
2.00%
6.30%
-10
0.40%
3.50%
n/a
n/a
5.20%
n/a
0.50%
1.40%
0.60%
6.20%

55.1
0.90%
4.00%
1.10%
0.30%
0.50%
4.70%
-12
0.30%
3.50%
6.60%
10.10%

index
q-o-q
y-o-y

1.83
0.60%
1.10%

1.72
-0.20%
0.10%

1.81
0.50%
0.40%

y-o-y
SEK bn
%
m-o-m
GBP bn
GBP bn
lvl
y-o-y
%
y-o-y
y-o-y
q-o-q
m-o-m
y-o-y
index

1.60%
52.1
2.40%
n/a
0.9
1.0
67.0K
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a

1.40%
46.9
2.50%
0.70%
0.9
1.0
66.7K
2.60%
12.20%
0.70%
n/a
1.70%
0.30%
2.00%
99.64

n/a
n/a
2.50%
0.20%
0.7
1.3
68.5K
2.70%
12.20%
0.80%
0.90%
2.50%
0.20%
2.10%
n/a

Source: UBS Global Economics, Bloomberg LP, Reuters LP, Reuters, Market News International

UBS 3


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