Stronger China Data Doesn't Always Help Australia, Because Bear Costumes Are Hard To Remove

Bear costumeFile photo: Getty / Ralph Orlowski

The Australian share market and the Aussie dollar had an early morning swoon – local and Asian traders didn’t react too excitedly to the election of the Abbott Government or the Chinese trade data over the weekend.

Monday in Asia is always fraught with danger as it really is the big markets of Europe, the UK and especially the US, that drive global sentiment and trade direction. Which is probably why the moves have been a bit more tentative that they might have been or could have been expected to be.

Shanghai Composite – Source Yahoo Finance

But both markets had a little of their mojo back around Asian lunch after the Shanghai stock exchange leapt out of the blocks and lifted by over 3%. The Aussie has regained US92c for the moment and the ASX All Ords closed at 5179, close to the highs of the day.

Being positive on Australia, the Aussie dollar or even the ASX to a lesser extent is something that traders and strategists haven’t been to comfortable with over recent months and the pervading bearish tone, well, pervades.

But there are some lone bulls out there willing to stick their necks out. Writing in their weekly note to clients this morning Rochford Capital said:

For many months now we have been citing that a new Australian government may have a positive impact on sentiment and for Q4 13 to show a bit of a recovery for the battler, its early days but so far this seems to be transpiring. The Coalition has already set a pro-business tone with announcement of a gradual reduction in corporation tax and plans to spend significantly on infrastructure. The recent uptick in Chinese data will also prove positive for the AUD going forward.

The CBA likewise put out a note last week saying that the AUD was US94c and followed it up this morning with an affirmation of this call. But the FX guys at the NAB reckon the Aussie is going lower and are short from 0.9210 and will only cut (get out of) the position if the AUD/USD rallies up above 0.9350.

It is an interesting market at the moment – one that just can’t let go of the bearish Aussie feeling with even the short term bulls thinking this is only going to be a little rally before sellers re-emerge.

But the Chinese improvement and BRIC data turnaround are unequivocally positive for the AUD and the ASX while it lasts. The two charts below tell the story – after some weakness Chinese data should be supporting.

ASX versus Citibank Chinese Economic Surprise index

While stock traders seem to have noticed no-one has told the Aussie Dollar. A bear suit is a hard suit to take off it seems. Just ask me. It’s an impossible feeling to shake.

AUDUSD v Chinese CItibank Eco Surprise Index

But with almost universal bearishness still dominating perhaps, just perhaps the Aussie dollar might surprise us.

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