The Australian dollar charged higher yesterday after a combination of a better tha expected retails sales print combined with much stronger than expected buseinss inventories and compnay profits to give traders a clear indication that, for the moment at least, worries about the outlook for the Australian economy seem a little overdone.
I have enduring concerns about retail sales myself. BUt as I wrote yesterday, "a strong retail sales print with solid partials for GDP will assuage many fears and get traders focussed on a solid GDP print and thus the topside of this range".
So from around 0.7582 just before the data at 11.30 am yesterday (which also including a positive outlook for employment in the ANZ job ad series) the AUDUSD rallied to a high of 0.7665 overnight. That's a full 110 points off the low and while the Aussie dollar dipped back a little with the Euro from its highs at 0.7653 the Aussie is still going strong this morning.
And it is looking strong this morning now that the 0.7410/0.7610 range has broken.
In no small part the little lift we have seen this morning came from the release of the latest services PMI (via AiGroup) which shows that Australia's vast services sector is growing strongly.
What this new information, along with the partials for GDP and the recognition that they point to an upside risk from the markets current 0.8% expectation for Q1 growth to be released tomorrow, tells us is that for the moment at least the RBA will continue to warn the next move in rates is going to be higher.
That's likely to be the theme in a no change meeting and governors announcement this afternoon.
The big question going forward is whether the rest of the economy is going to be strong enough to balance out what still looks like a fragile household sector as wages growth remains, household debt high, and falling house prices.
At the moment the answer seems to be yes.
And that means traders have refocussed on the positive aspects of the AUDUSD - especially while there is this hiatus in the USD's rally.
And that will likely see the Aussie find support on dips - for the moment anyway.
To the chart now.
As discussed above, from around 0.7582 just before the data dump the Aussie roared to a high overnight around 0.7665 (bottom of the up channel from 2016 lows). That was just a few points above the 61.8% retracement of the fall from just above 78 cents to just above 74 cents. So last night’s high is going to be a level to watch to see if the Aussie can kick toward the top of this downtrend channel and perhaps even 78cents.
The reality, however, is the Aussie backed off with the Euro. So there is still a little, or a lot, of USD in this move. On the day resistance is 0.7665 then the channel top at 0.7680. Support is 0.7607, then 0.7589.
Here's the weekly chart:
Here's the daily chart - a break of 77 cents would be decisive. And suggest a run to 78 cents.
Have a great day's trading.
Chief Market Strategist
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Ongoing rate curve repricing and risk asset reaction perfectly illustrate how worryingly reliant investors have become on easy money policies