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The Australian dollar is grinding higher - now for NAB business and China inflation data

Market Analysis /
Greg McKenna / 10 Jul 2018
  • The Australian dollar was soaring up toward 75 cents overnight before the Brexit madness and Boris Johnson's resignation sent the Pound tumbling and gave the US dollar a lift. 
  • The Aussie moves continue to be dominated by these offshore events with the hour by hour machinations driven by moves in the Chinese Yaun and the Euro
  • Today, however, the release of the NAB business survey and the window into Australian growth it delivers will focus attention on the domestic economy. Chinese inflation will also be important. 

After a  few decades in markets, it's pretty easy to pinpoint the question I get asked the most. That question is, "what do you think or...[insert your asset of choice]". Bitcoin was the big one late last year, stocks are always persistent, and so too has the Aussie dollar been. 

The reason I raise this today is so that I can frame my discussion about the Australian dollar correctly. Because of the answer I always give to the question of "what do you think of..." is "what's your timeframe".  

Because the outlook for the Aussie very much depends on the timeframe you are looking at. 

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

On the daily charts the Aussie looks like it could rally further given the base at 73 cents and the turn in the MACD. Of course, that also accords with the weaker tone in the USD, the better bid in the Chinese Yuan, Euro, and other currencies, the lift in global stock markets, and the fact that the CFTC data suggests the Forex market is now long of dollars. That takes away some of its buying power. 

On the four hour charts, the message is a little different though with the chance the AUDUSD may have made an initial top for this run overnight around 0.7482/3. While that level holds the chance of a test toward the bottom of the uptrend, which is also the 38.2% retracement level of this latest rally is high. That level is 0.7417/18. 

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

So it's a question of timeframe. 

But, to the extent that stocks are rallying and the USD is under a little pressure, the Aussie is likely to be bought on dips. In the short term anyway. 

Longer term the negatives that are stacked up and stacking up against the Aussie dollar, things like the trouble in emerging markets, an apparent slowing in the Chinese economy, domestic headwinds for households and potentially business (watch the NAB survey today), interest rate differentials, commodity prices, the performance of metals and mining shares versus the overall market, and the still unresolved trade war between the US and China, mean that on any rally up and through 75 cents, to 0.7550, perhaps 76 cents is likely to be offered. 

Have a great day's trading.

Greg McKenna

Chief Market Strategist


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