Where The Jobs Are!

It certainly appears that the” Land Down Under” has its “Help Wanted” sign out, as the employment picture in Australia continues to brighten. Payrolls in January rose by 52,700, which sent the unemployment rate down to 5.3% — which is the lowest level in nearly a year. The rise in employment comes despite efforts by the Reserve Bank of Australia (RBA) to raise its benchmark interest rate, currently at 3.75%, to help slow a surging economy and keep inflation in check. Although the RBA kept rates steady at its Feb 2nd meeting, any additional signs that the economy is starting to overheat — such as sharp improvement in housing prices, retail sales, or wages — could force bank officials to continue to put the brakes on the economy, by speeding up the withdrawal of previous stimulus measures and continuing to raise interest rates. The Australian economy has benefitted from trade with its northern neighbor, China, whose appetite for raw materials and grains is happily met by Australian businesses. Concerns that Chinese imports would slow considerably, due to efforts by the Chinese government to curtail bank lending and rampant speculation, has hurt the value of the Australian Dollar and other so-called commodity currencies, such as the Canadian Dollar and Brazilian Real, as traders were forced out of their long positions in these currencies vs. the U.S. Dollar and Japanese Yen. Now that the massive liquidation in “carry trades” may have run its course, some nimble speculators may wish to once again look at buying the “Aussie”, as the potential for rising interest rates and improved economic conditions make Australian investments even more appealing.

Trading Ideas

With the Australian economy showing solid signs of improvement, and long liquidation selling in the Aussie Dollar looking to have run its course, it appears that the Australian Dollar futures may have put in a near-term bottom late last week. Some traders looking for last Friday’s lows of 0.8547 to hold for the next several weeks may wish to investigate selling puts in the Aussie Dollar with a strike price below 0.8547. An example of this trade would be selling the March Australian Dollar 0.85 puts. With the March futures trading at 0.8867 as of this writing, the 0.85 puts could be sold for 0.0022, or $220 per option, not including commissions. The premium received is the maximum potential gain on the trade. Given that the potential loss in selling naked options can be very high, traders should have an exit strategy in place should the trade move against them. One such strategy would be to close out the trade before expiration if the March Australian Dollar trades below support at 0.8547.

Technicals

Looking at the daily chart for March Australian Dollars, we notice an over 300-pip rally in the futures after making 5-month lows last Friday. The buying spree has taken prices to the 20-day moving average, currently at 0.8897. The longer-term 100-day moving average looms just above current levels near the 0.8950 area. The 14-day RSI has recovered sharply after reaching oversold levels last week, with a current reading of 49.24. Thursday’s price surge also broke the downtrend line formed from the January 14th highs of 0.9275. As mentioned in the “Trading Ideas” area, 0.8547 has become key support for the March futures, with resistance seen at the 100-day moving average, currently near 0.8950.