The Australian dollar just had its first up day in more than a week

Market Analysis /
Greg McKenna / 22 Jun 2018

Here's my question for today. 

If stocks start to slide but the USD is a little weaker what does the Australian dollar do? 

The answer of course is, it depends. But that doesn't help me or you dear readers so I'll try to do a little better than that. 

First things first. 

It depends on how far and how fast stocks slide. If it's just related to that SCOTUS decision to levy state sales tax on online retailers than it's probably not too bad for the Aussie or other risk assets. But if the selling is related to concerns that Daimler's profit warning on the back of the trade war is just the thin edge of the wedge then the fall in stocks could accelerate and the Aussie - and other risk assets - would be extremely vulnerable. 

So it does depend. 

But it also depends on what the US dollar did. And on that front the fact the DXY hasn't been able to close above the 95.20 level and that Euro held and bounced from 1.15 again last night suggests the USD is having a pause in its rally. 

As a result that is alleviating further downward pressure on the AUDUSD from the USD side of the cross at least.

And with that in mind, it is worth reiterating the comment I highlighted from Fed chair Jerome Powell at Sintra the other night when he said the Fed was seeing some effects of the uncertainty around the trade war on business decisions in the US. Wilbur Ross disputed it CNBC says. But it highlights a risk that we may see some of that uncertainty start to show up in soft indicators like the PMI's which are due tonight - n flash format - and then fully in early July. 

SHould US data start to slip then the USD could come under pressure. Depending however on how bad other jurisdictions print though. 

So to get back to my question. 

The Aussie dollar remains pressured by the slip in stocks across the globe last night, the continued weakness in commodity prices, the outlook for the Australian economy, and the medium-term outlook for the USD. For the moment though if the Euro holds above 1.15 the chance of a run toward 1.1730 grows. 

And that might see EURAUD rally but it would also mitigate some of the weakness for the Aussie dollar. It's how the Aussie managed to have its first up day in 6 yesterday.   

SO this morning the AUDUSD sits around 0.7378 looking on the dailies and the 4-hour charts like it is trying to bottom for the short term. 

0.7405/10 is now the short-term key to the price action. A break would open a run to 0.7425 then 0.7450. Overall though the downtrend remains intact even though the short-term technical outlook might be improving – as long as stocks don’t tank that is.    

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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