Originally published by AxiTrader
When I think about the Aussie dollar, its value, and where its headed I usually group the myriad of drivers into 5 key groups.
Those groups are, in no specific order:
- Global growth and commodity prices;
- Domestic growth and interest rates
- Global risk appetite/aversion
- Technicals
- The US dollar, which is after all the other side of the coin
And while clearly the key driver of the Aussie's fall down into the 0.7550 region it sits this morning is the US dollar's resurgence the reality is none of the other factors are really working in its favour right now.
Sure the rally in stocks over the last couple of days, and the continued optimism about the outlook for the global economy in 2018 and 2019 should support. But they are currently getting swamped by concerns traders appear to hold that both these positives will prove ephemeral.
So commodity prices and risk appetite aren't following this optimism and price action in stocks higher.
Likewise, there are concerns about the outlook for the domestic economy here in Australia - or more specifically households - and the impact that will have in keeping the RBA on hold for a significant period. That, in turn, is hurting the bond spreads which offshore investors often use as their excuse to buy the Australian dollar with both the 2 and 10 year spreads negative. Indeed US rates are higher than those in Australia across the curve.
Of course, the technical outlook is negative on the dailies and the weeklies as I pointed out yesterday in my special post looking at the AUD/USD across multiple time frames.
Which of course brings me back to the US dollar, which has - after a longish period of consolidation - found its feet. Euro has broken lower to 1.2100 and if that level breaks expect the US dollar to head substantially higher. Which of course would imply the Aussie will head lower.
My targets remain the same. 0.7575/80 I see as a key level of support. Below here its 0.7333 and perhaps even 0.7142. A break of this last line of Fibonacci resistance would see the Aussie heading back below 70 cents to the 2016 low.
Here's the daily chart. Oversold(ish) but still plenty of room for further downside. That low around 75 cents looks interesting as a point of intersection.
Have a great day's trading.