The Aussie dollar is up because the USD is weak - can it last?

Market Analysis /
Greg McKenna / 01 Jul 2018

The Australian dollar ended the week above 74 cents, regaining much - but not all - of the recent fall from the mid 74 cent highs a couple of weeks back. 

The rally is almost exclusively driven by USD weakness even though the bid certainly came in to the AUDUSD during Asian trade Friday when Chinese markets and the Yuan found their feet and reversed some of the recent weakness in both markets. 

I make that point for two reasons. 

First in my experience over many decades now in markets, the USD is possibly the most under-appreciated driver of the AUDUSD by many traders and investors. 

I know that sounds ridiculous. But you can add in all the interest rate, commodity, and growth drivers you like, but if you forget the Greenback you’ve Left out a big piece of the puzzle. 

The second point is that the negative backdrop of interest rate, commodity, growth, and policy differentials still pose a material headwind for the Aussie dollar. 

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

Of course we’ll get the US side of the data equation. But this week also sees an RBA meeting and statement, retail sales, and trade together with the various PMI’s and Illinois business survey to guide us from the Australian side of the ledger. 

I’m particularly interested in the RBA meeting and what the governor says. will he acknowledge the looming headwinds 

So while the chance of a bounce into the mid-74 to 75 dent region is on the Aussie side of the cross might undermine things a little. 

To the charts now and it's a question of tides and waves. The tide is down as this trend channel shows. But the waves are pushing a little higher.  0.7445/50 is resistance and a break could see a move toward the top of the downtrend channel around 0.7575/80 with 0.7472/77 resistance on the way up. Support is 0.7395.  

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

Have a great day's trading.

Greg McKenna

Chief Market Strategist

gregmckenna.com.au

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