Originally published by AxiTrader
Markets are taking the material uptick in tensions on the Korean Peninsula mostly in their stride, which means the Australian dollar, while lower, is actually holding in reasonably well.
Sure it rallied back into the black at one point yesterday making a high around 0.7970 as the buy-the-dip crowd entered the fray before pulling back again. But at 0.7943 this morning it's only 23 points below the close on Friday night in New York.
Which is hardly a move at all in the grand scheme of intra-day let alone daily moves. And certainly hardly a move at all given the geopolitical risks that the face off between the DPRK and the rest of the world suggests.
I think the markets are far too sanguine about the potential for conflict and I have discussed why in my Overnight Wrap which you can read here. Even the Russians say "sanctions alone won't help solve this issue". But it's Nikki Haley's, US Ambassador to the UN, comments which don't leave a lot of room for manoeuvre.
Haley said (my bolding) "the idea that some have suggested of a so-called freeze-for-freeze is insulting. When a rogue regime has a nuclear weapon and an ICBM (intercontinental ballistic missile) pointed at you, you do not take steps to lower your guard. No one would do that. We certainly won't."
But there is only a mild bout of risk aversion given statements like that and the Aussie is still nicely ensconced above 79 cents.
Clearly a large part of that - even though AUD/USD did underperform the kiwi and Canadian dollar over the past 24 hours - is the strength of the domestic and global economies at the moment.
We've discussed this many times recently so I won't go over it again directly. But this reality, and the solid data flow from a growth perspective that flows from it, will inform the RBA's decision on interest rates and the governor's statement today.
On that front the RBA is going to find it difficult to be anything upbeat about the outlook. Certainly, the local jobs market has enough slack to allow rates to stay where they are for some time. Likewise inflation pressures remain dormant right now.
So the RBA can easily make the case for leaving the official cash rate at the record low of 1.5%.
But the rest of the statement is likely to be upbeat and supportive of the Australian dollar. Indeed were it not for the uptick in tension on the Korean peninsula and associated mild risk aversion traders would be focussed on a move toward the highs for this year around 0.8050/60.
But there is risk aversion and it is holding the Aussie back.
Looking at the charts now then the story remains the same as yesterday.
AUD/USD is not far off the uptrend line from this rally either - that sits at 0.7928 at present. Thursday low at 0.7920, if it breaks, would confirm the move.
The focus would then turn to 79 cents and - more particularly - the 0.7965/70 region where the Aussie found support. Below that it's the August low in the 0.7800/10 region.
Topside a break of 0.7995 would be a sign the rally is back on.
Have a great day's trading.