Stronger but not strong - what's next for the Australian dollar?

Market Analysis /
Greg McKenna / 09 Jul 2018
  • US non-farm payrolls and associated wages and unemployment data printed in the Goldilocks zone which suggests US economic strength but no need for accelerated Fed hikes. 
  • That saw the US dollar lose round across the board and saw the AUDUSD once again test, but fail at, 0.7445/50. 
  • That said while the USD is in retreat the Aussie should rally even if it does lag other majors. NAB Business survey, Westpac consumer sentiment, and US PPI and CPI will be the big drivers this week. 

I think it's fair to say that we can pencil in the 73 cent level as a sustainable bottom for AUDUSD for a little while now that the US dollar reversal seems to be gaining traction. 

I say that in the wake of US non-farms on Friday night. The release of May non-farm payrolls which appeared to deliver a not too hot, not too cold combination of jobs (+213k), unemployment (4%), and wages growth (0.2%, 2.7%) saw traders sell the USD and buy everything else. That this move ignored the material increase in the previous month's numbers and the fact this data reinforces the gradual approach of the Fed was lost on many traders. 

And so the Aussie rose as the tide of USD weakness lifted all boats. 

Source: Twitter Screenshot
Source: Twitter Screenshot

But unlike Euro which is a direct trade against the USD Aussie dollar traders also have to take account of things like the collapse in copper and industrial metals lately, what that might imply about the outlook for Chinese and global growth, the fact that Australian data has slipped whiles other nations has improved, and a lingering notion that while other central banks are readying to change their policy settings the RBA faces a challenge not seen in decades. 

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

It is these residual concerns which are the handbrake on the AUDUSD rally, though it can still appreciate if the USD falls out of bed. 

And that is the issue at hand today the Aussie has turned and should rally but the question is how much. 

For the moment this 0.7445/50 is capping and above that 0.7472/79 also offers resistance. We’ll see how the Aussie goes if the Euro continues to lift. But because this is an anti-USD move the battler will likely ride along but in the slow lane.  

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

0.7505 and 0.7589 are the big levels to watch. 

Support is 0.7375. 

Have a great day's trading.

Greg McKenna

Chief Market Strategist

gregmckenna.com.au

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