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The Australian dollar is leveraged to the reaction to news of cooling in trade tensions

Market Analysis /
Greg McKenna / 21 May 2018

Risk on, risk off. 

RIsk off, risk on. 

As trite as it is to distil moves in markets down to these base descriptions it is fundamentally true that the Australian dollar does have a strong relationship to how investors feel about the market and economic outlook. 

That then flows into the risk appetite or risk aversion, that myself and others often write about and have factored into our short-term fair value models of the AUDUSD (and AUDJPY). 

So this morning, after the news of a cooling in China-US trade tensions over the weekend, the Aussie is leveraged to the market's reaction to this news. 

Already the Aussie is up about 0.2% at 0.7526 which is roughly in line with the first line of resistance it faces in the very short term.  

But the question for today is what will the market's response to the China-US trade news. 

As I wrote earlier, on the one hand the deal is USD positive – especially against the Yen. As a result AUDUJPY is up at 83.45 this morning for a gain of 0.3% so far. Indeed if we see a rally in stocks then the Aussie is likely to outperform as it too can benefit from an increase in risk appetite.

The trouble, of course, is that the news came over the weekend and Monday morning’s in Asia can be fraught.

So the best guide is likely the Charts. Resistance is 0.7527 and then 47 and after that recent high at 0.7566. Support is 0.7488/90 and then 0.7442/47.

But over the course of the week, my sense is we'll get a better feel for where the Aussie is going once we get the Fed minutes and as we watch the relative performance of metals and mining shares to the overall market. based on the weekly charts however it does look like the AUDUSD might be ready for a topside probe. 

A move above last week' high at 0.7565 is the key. 

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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