The Australian Dollar's Rally Is Over If The US Dollar Is On The March
Axi | Jun 16, 2017 09:50
Originally published by AxiTrader
The Australian dollar has again failed just below important resistance at 0.7640 after the US dollar strengthened in post FOMC trade.
At 0.7578 this morning the Aussie is roughly where it was this time yesterday, down just about 0.1% day on day. But that leaves AUD/USD with a very ugly candlestick on the daily charts and at risk of a deeper move if 0.7460/65 gives way.
As I wrote in my Daily Aussie note yesterday with commodity prices and interest rate differentials undermining the Aussie dollar it was only really the US dollar’s weakness that supported the Aussie move up to and through 76 cents.
That's not to diminish the importance of the very solid employment report yesterday which was the catalyst for the Aussie's strong showing in the Asian session.
The rise of 42,000 was very solid and underpinned by a strong showing in full-time employment. But for me, it's the unemployment rate, which fell to 5.5%, that is structurally the most important for the Aussie dollar over the long run as you can see in the chart below (UE inverted).
While I wouldn't put the unemployment rate into a coincident fair value model of the Aussie dollar it's still important in shaping investors and traders thoughts around where the economy is at and what the RBA's policy outlook is, or will be.
But in the immediate term with the US dollar stronger and looking bid, as the Fed charts a hawkish trajectory, and with Australia/US bond spreads still very tight historically, not to mention commodity markets on the weaker side of the ledger, the chance of a sustainable AUD/USD rally above this week's highs are reduced.
That's too long a sentence. Sorry. But it's essentially the three-legged chair from the picture on yesterday's post.
For the moment AUD/USD has support at the old resistance level of 0.7566 which also provided support in the hours immediately after the Fed. A break would suggest a move toward 0.7515/20. But the 0.7566 level has to break first.
But the 0.7566 level has to break first while on the topside the 0.7640 region is resistance. These two levels neatly summarise the recent range top, no support, and the 138.2% Fibonacci projection of the recent move which had 0.7566 as the top.
Here's the chart. It's an ugly, ugly, daily candle. We'll see how we end the week.
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