Aussie Getting Hammered As Trends That Supported The Rally Unwind
Axi | Mar 09, 2017 10:40
Originally published by AxiTader h2 Key Takeaway/h2
You're not supposed to repeat the headline in the first line of a post but I have to today because that's exactly what's going on - The Australian dollar is getting hammered as the trends that supported the 2017 rally unwind.
That is, commodities, base metals, iron ore, and gold are all falling while bonds rise. Investor risk appetite has taken a hit, and the US dollar is rising once more. Throw in a long speculative market and you have the setup for the reversal I have been writing about this week.
It's kicked the AUDUSD down to 0.7529 as I write. That means it's just 10 points shy of satisfying the garden variety 38.2% retracement of the 2017 rally. It's also sitting right on the 200 day moving average at the moment.
h2 What You Need To Know/h2Yesterday morning I noted that the previous day's rally above 76 cents had no basis in fact. I felt the same when we saw the Australian dollar trading within a point of the previous day's high at 0.7608 in lunch time Asian trade.
That's because as I also noted yesterday I felt the key drivers of the Aussie dollar's rally in 2017 were unwinding and that meant the worm was turning for the Aussie.
Just take a look at the overnight moves in base metals, iron ore, and gold from my Reuters Eikon Terminal.
Red ink everywhere.
That's not a good sign for the Aussie dollar even if the reversal in many of these commodities is simply a reaction to the very strong rally we have seen over the past six months.
Their pullback undermines the Aussie dollar.
As does the stall in the stock market rally. That's because it speaks to a little waning in overall global investor risk appetite which was also anj important plank in the the Aussie dollar's climb.
And of course we can't forget the US dollar. In USD Index terms
In USD Index terms the dollar is finally climbing back above 102 as its rally slowly builds. But that quite move understates the move of the US dollar against emerging and commodity currencies over the past few days.
The Aussie, CAD, and kiwi are all 0.6-0.7% weaker against the US dollar over the past 24 hours. Each has its own issue – Oil for the CAD, dairy prices for the Kiwi and base metals and iron ore for the Aussie. But this move is also about the US dollar as well which is why the dollar/commodity bloc is losing the most ground – it’s a double whammy.
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Equally it’s no surprise then that the South African rand, Brazilian real, and Russian rouble are all of around 1.3-1.4% as well. The Mexican peso too lost ground against the US dollar. Probably the US Dollar Index – the DXY – is just too narrow a measure to see the real US dollar strength.
Probably the USD Index – the DXY – is just too narrow a measure to see the real US dollar strength.
So what about the outlook for the Aussie?
As I wrote last week, when the Aussie has rejected 77 cents over the past year the pullbacks have ranged between 200 and 600 points. So support here at the 200 day moving average of 0.7530 and the 38.2% retracement of the 2017 rally at 0.7519 fit the bottom of this analogue.
Looking at the charts a break of this region would a move to 50% at 0.7450 and then the 61.8% move at 0.7384. My system remains short but i have reduced to 25% of original position.
Here's the chart.
Now everyone is waiting on US non-farm payrolls tomorrow night. Bloomberg TV this morning reports the whisper number has climbed above 200,000.
Maybe that means there is room for disappointment and the Aussie will find some support into week's end. Unless of course it is a massive number as last night's booming ADP report of 298,000 private jobs suggests.
Have a great day's trading.
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