Holding 74 cents the Aussie dollar is on shaky ground

Market Analysis /
Greg McKenna / 19 Jun 2018

What's the oldest art form on the planet? Arguably it's storytelling.

Whether through rock art or verbally, humans have been sharing their stories for millennia.

Markets are a subset of humanity so on that basis, narratives matter, sentiment matters, people's behaviour matters. 

They all matter for markets. 

I start with that this morning because it seems that the narrative around the Australian dollar has changed materially over the past couple of weeks. Of course, as I wrote yesterday, sentiment is a very fickle friend - so having looked like it wanted to trade 77 cents just a week or so ago the Aussie now looks like it wants to break 74 cents. 

So traders need to be wary of buying the high and selling the low. 

But the narrative seems to have shifted on both sides of the AUDUSD cross. That teh Fed is going to be more aggressive because the US economy is doing so well and that the RBA is not going to do anything for ages because the Australian economy faces some decent headwinds. 

And so it is this morning that the Aussie dollar is under pressure once more. For the moment the May low has held with the AUDUSD trading down to a low of 0.7414 overnight. But the price action fairly screams downside pressure.

And, as I've written the last few days which your probably bored with but I have to repeat,  why wouldn’t it?

China data is weakening, there are genuine fears that this trade war kicks to the next level, worries about the Australian economy and the changed narrative around it now that the RBA has essentially said nothing is happening till wages growth lifts – a remote prospect. So the Aussie is offered on any rally and at risk of a material break toward the 0.7125/50 region.

This backdrop, and last month’s own goal about stability and confidence makes the release of the RBA minutes important for the Aussie. Given governor, Phil Lowe has spoken since the meeting and also since the release of GDP there should be no surprises. But traders will be watching closely for any hint, subtle or otherwise, the RBA is drifting toward a cut – or not as may be the case.

Here's the very ugly chart. I'm respecting both the recent low and the fact the Aussie is outside the Bolly Band on the daily charts. But on this weekly you can see how the way lower opens up if 74 cents gives way. 

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

Have a great day's trading.

Greg McKenna

Chief Market Strategist


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