Australian Dollar Strengthens Against The US Dollar And On The Crosses
Axi | Jun 08, 2017 12:12
Originally published by AxiTrader
The Australian dollar continues to be well supported trading up to its highest level since Anzac Day with a peak of 0.7566 against the US dollar overnight. It is also making gains against the euro, kiwi, Canadian dollar, and yen with this current rally.
It's a strange rally in many ways because at a macro level the fundamental supports seem to be lacking.
Iron ore is languishing again. Australian GDP growth yesterday wasn't awful. But it was supported by inventory and consumption - both of which may prove ephemeral drivers. And the growth rate of just 1.7% for the year to the end of March is the weakest level since the GFC.
It's not the healthiest starting point for the RBA's increasingly heroic expectation that growth is going to accelerate back toward potential at 3% and beyond. But it was that expectation, and a weaker US dollar which was a big part of the drive higher in the Aussie so far this week.
But my sense of this rally is that with the Aussie consistently finding support recently in the mid 73 cent region against the US dollar, with the AUD/NZD itself finding support above 1.04 and near a long term trendline which stretches back to 2104, and with the Australian data over the past few days not as bad as many were starting to fear the outlook for the Aussie brightened. Both against the US dollar and on the crosses.
Naturally, as I have been writing the last few days it was also a technically driven rally with the break of the 200 day moving average at 0.7527 a positive medium term sign.
The question of course is can the Aussie continue to rise against this backdrop where iron ore is weak, bond spreads to the US compressed, and the domestic economic outlook clouded.
The answer to that question is maybe.
The Aussie has materially underperformed US dollar weakness over the past month and is only just now starting to catch up. That's one of the reasons it's again making headway on the crosses.
Based on just the US dollar as an indicator - without the handbrake of Australia's commodity basket and bond spreads - the Aussie could be trading as high as 79 cents. But when you add in the hand brakes the Aussie is likely approach a fairer value in this 0.7550 region right now.
Get The App
That means it gains are going to be harder to find unless we see further US dollar selling or a turnaround in base metal prices and or bond spreads. That might be a stretch right now. And that suggests a move up to 0.7590/0.7610 might be both achievable short term but a stretch to hold for an extended period for the Aussie.
Short term the 4 hour charts for the AUD/USD look like they might be turning for a run back toward 0.7620/25 while below last night's high at 0.7566. There is short term support from a very steep trendline at 0.7535 on the day as well.
Here's the chart.
The crosses are more sanguine.
AUD/NZD looks positive up toward resistance at 1.0550. But that resistance, the bottom of the old downtrend channel, looks pretty solid right now. EUR/AUD looks biased lower though. Perhaps even to 1.4650 or lower.
AUD/JPY is in a range and GBP/AUD depends on the outcome of the election tonight.
On the data front both the Australian and Chinese trade data will be important today for Aussie dollar traders.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.