Originally published by AxiTrader
The Australian dollar is still drifting, seemingly only supported by the stall in the US dollar's rally in recent days. What's ailing the Aussie is for me a lack of a compelling narrative around why investors or traders need to buy Aussie.
That's true for the AUD/USD as global investors seek opportunities in other markets. And it's also true of the Aussie on the crosses where it has lost ground in recent days against the euro, yen, pound, Canadian dollar, and kiwi.
On the latter, AUD/NZD is now at its lowest level since February this year and it's just 40 points or so above the tentative trendline back to the 2015 low this morning at 1.0379. At present this cross is being driven by the slow drift in the Aussie and the continued surge in the kiwi which has driven it back toward trendline resistance around 0.7280.
Should that level hold then there is every chance that AUD/NZD can hold support at 1.0335/45. Likewise the AUD/USD needs to hold above it's own support at 0.7515/20 to keep this trend intact.
A break of either will see AUD/NZD fall toward the mid 1.02 region, perhaps lower. As ever though, I respect levels unless or until they break.
Likewise AUD/CAD is sitting on important support as the Canadian dollar benefits from oil's attempt at a recovery and last night's stonkingly solid April retail sales data. The print of 0.8% was 4 times what the pundits had forecast and speaks to the very type of economic recovery which BoC governor Poloz and his deputy recently suggested could see the central bank raise rates.
0.9950/60 is the level to watch in AUD/CAD.
Turning back to the US dollar, as the bellwether Aussie rate, it is worth talking about the impact of the South Australian government's bank tax on investors attitudes toward Australia as an investment destination.
Yesterday I wrote in my Aussie dollar column that I get a sense that global investors are moving on from Australia. This bank tax might just accelerate that trend.
We now have a federal and state bank tax, we have the government intervening in the gas market, and we have worries about household debt and financial stability. This will take more than one day or one month to play out. But from an investors point of view one thing they never had to consider when investing in Australia must now be factored into the decision-making process – political risk.
That's important because in all the years I spent travelling, talking to investors, central banks, hedge funds, and companies across the globe political risk was never a topic that entered the conversation.
Never, folks. Never.
But I’m not sure the SA bank tax is going to enamour Australia as an investment destination when global investors sit around their monthly investment committee table in July. That’s especially the case if other states follow suit.
Anyway, looking at the AUD/USD price action the story remains the same. 0.7515/20 is key to the outlook. Even a casual look at the chart will tell the most neophyte trader can see this is an important zone of support.
Have a great day's trading.