The Australian dollar slipped below the .79 cents level yesterday but has recovered slightly overnight.
“Risk went off after President Trump’s “fire and fury” comment was met with an equally belligerent threat from the North Koreans that they might be looking to target US military bases on the island of Guam,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.
He added: “The Aussie’s fall and recovery show its inherent nature as a risk currency. So, as risk goes so goes the Aussie.”
According to McKenna, the reality is that many traders use the Aussie dollar to reflect their outlook on global growth.
“This means the Aussie is often prone to buying and selling on the basis of investor and traders risk appetite,” he said.
One big reason for this is that the Australian dollar is a very deep and liquid currency.
“So yesterday’s selling pressure originated pretty much at the same time that US stock futures opened down. The Aussie then stabilised when futures stabilised,” he noted.
He pointed out that as markets walked back from the worst of their fears, or correctly put, US Secretary of State Rex Tillerson tried to walk the US back from what appeared to be a red line, markets – and the Aussie dollar began to recover.
Tillerson said of the “fire and fury” comment that: “What the president is doing is sending a strong message to North Korea in language that Kim Jong Un would understand because he doesn’t seem to understand the diplomatic language”.
“That seems to have been an important circuit breaker overnight and it has helped the Aussie dollar,” McKenna noted.
The Aussie dollar was under intense selling pressure against the Japanese yen yesterday.
“This is often the Aussie dollar cross which best reflects investor appetite – both good and bad. It’s back at 86.73 this morning, so it may find support,” McKenna said.
But if the low in the Aussie/Yen doesn’t hold it would be a sign that the Aussie/USD and other crosses, will be under pressure again.
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