74 cents - can the Aussie hold it?

Market Analysis /
Greg McKenna / 13 Jul 2018
  • The Australian dollar has lifted from the lows yesterday morning as copper rallied and as stocks rose. 
  • That uptick in risk appetite - or more correctly, the reduction in risk aversion - allowed the AUDUSD to hit a high of ~0.7419 while the USDJPY surge saw AUDJPY hit a one-month high around 83.40. 
  • What's next depends on near term sentiment toward the trade war and risk appetite. But CPI and PPI data, along with Fed comments, reinforce the stronger Greenback trend. 

Not that we needed to learn it again. But the price action of the past few days has reinforced via the moves in the AUDUSD, copper, stocks and other assets like the Pound this morning since President Trumps comments about Brexit and Boris Johnson in teh Sun hit the wires, that this is a market reacts to headlines, then settles.

And then waits, for the next headline. 

So having accessed AUD liquidity to express their fears traders reduced some of those bets when price action stabilised again yesterday and when Chinese stocks rose again. Probably more importantly though is the fact Chinses authorities are still grappling with exactly what their response to the latest round of tariffs might be. 

So there was no fresh bad news to feed fears, knock risk appetite, and of course the Aussie dollar lower.

For the moment then, the pressure is relieved and the Aussie has floated back up to 74 cents against the USD. My sense is that the strength of the US economy, the fact that President Trump appears to be "winning" in his many and varied battles across the globe, and the fact that US CPI was high enough to keep the course on track for 2 more rate hikes in 2018 is again supporting the US dollar.

As such all the headwinds I've been talking about - and I know you know about dear readers - will continue to see the Aussie sold on any rallies and thus keep the weekly downtrend intact.

Short term the rally saw the AUDUSD stall at the 50% retracement of the recent down move to the 0.7360ish low yesterday.  While it stays below the 0.7435/40 region - 61.8% level - this reversal off 0.7480/90 is intact. 

Click on me, I'll expand
Click on me, I'll expand

Looking ahead the Chinese trade data today and the eventual release of the money supply and new loan data either today or over the weekend will also be important in informing perceptions about the strength, or otherwise, of the Chinese economy. 

While the PBOC and Chinese government are still aiming at a growth level of around 6.55 what's been remarkable is the uncomfortableness they are happy to put up with as they seek to restructure and derisk the economic outlook via their deleveraging efforts. 

The falls in Chinese stocks and the weakness in the Yuan are cases in point. 

That said the market is expecting moderation in both the level of yoy growth in exports and imports. Should either - or both - deviate too much from expectations I'd expect AUDUSD traders to react. 

Have a great day's trading.

Greg McKenna

Chief Market Strategist

gregmckenna.com.au

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