The Australian Dollar Finally Found A Bid - But Is It A Good One?
Axi | May 05, 2017 12:13
Originally published by AxiTrader
Amid the carnage in commodity markets over the past 24 hours the Australian dollar found a bid.
Oil and iron ore fairly collapsed, copper and base metals fell again, gold and silver came under pressure, and the overall Thomsen Reuters CRB index fell 1.87% to the lowest level since last August.
Yet the Australian dollar somehow managed to find a bid below 74 cents and is back - just - above that level this morning. From the low around 0.7382 the Aussie, at 0.7408, this morning is hardly in the pink of health. But it has found support nonetheless.
In no small measure, the Aussie's ability to withstand all these negative forces was again because of technicals factors - how AUD/USD looked on the charts.
The low last night was just a few ticks below the 0.7485/90 region I highlighted yesterday as the bottom of the trend channel and important Fibonacci support.
One important other support for the Aussie did emerge yesterday in RBA governor Lowes speech on Australian housing, debt, and the economy. Lowe highlighted that the surge in debt makes the economy vulnerable to a shock and consumer spending drought.
But he also reiterated his belief the Australian economy is strong and will printing growth numbers near potential in the years ahead. That makes the chances of another RBA rate cut - and the markets fear the RBA could go in the opposite direction to the Fed - more remote than some of us thought.
Indeed the Aussie-US 2 spread even ticked a couple of points wider over the past 24 hours.
Overall though if commodities are under pressure, if there are worries emerging about Chinese growth, and if the Fed is truly on track for another hike in June and then more over the course of the next 12 months then the Aussie is likely to remain pressured.
And that means the blue line on the chart above - the one that comes out of nowhere on the chart - might be where the Aussie is headed in the medium term. That level around 0.7280 traces back along the line to the lows of 2015 and is thus an extremely important level to watch.
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Short term charts suggest the Aussie can rally back to 0.7450/0.7475. But the key will be US non-farm payrolls tonight.
Have a great day's trading.
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