Aussie $ back in mid-75 cents region and still struggling

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I’ve been pretty vocal recently about the Australian dollar’s lack of appeal to international portfolio managers as the bond spread to the US collapses.

So it is really no surprise that the Aussie dollar is starting off the week in the mid 75 cent region, last traded at 0.7566.

What was a little surprising, however, Friday was how badly the Aussie lagged the initial rally in the Yen and the Euro and then how quickly the sellers came for it once AUDUSD poked its head back up above 76 cents.

Even a weaker US dollar couldn’t help the Australian dollar.

That’s instructive and it supports my hypothesis that the Aussie is irrelevant to a big swathe of the market for the moment and that unless or until it falls to a level which traders and investors see as a reasonable bet will continue to drift.

At the moment it sits on the side of the river of global capital flows…unless it falls to a level which makes it a compelling buy given the usual drivers. With the spread of US bonds a negligible 3.5 points in the 2-year and 21 points in the 10-year rates, even a positive global growth backdrop can’t help.

My sense is the Aussie is still pointing lower and will “do a Kiwi” and fully retrace to the start of the rally which took it above 81 cents. That suggests a pullback into the mid 73 cent region eventually. Then we’ll see if it represents value.

What’s interesting about the current move is that it neatly fits with what the RBA likes to see from the Australian dollar. For months it has been saying a stronger Aussie would complicate the outlook.

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So, with a raft of RBA speakers this week and in particular, the Governor speaking we may see a little subtle jawboning. Indeed, whether intended or not, the governor’s topic “Some evolving questions” at the ABE annual dinner tomorrow night will shine a light on the very thing that is worrying many economists and AUD traders – weakness in the household sector. So, the governor’s speech could be an important window into his, and thus the RBA’s, thinking. Consequently, it could also influence interest rate futures pricing and with that the Australian dollar.
In the near term at the very least, the charts are suggesting a move to the mid 74 cent region which is a 1.382% projection of the recent selloff and attempt to rally.

On the day 0.7585 looks like resistance on the 4-hour charts representing a trendline from the start of this fall back near 77 cents. It was also where the AUDUSD had a failed break above 76 cents Friday. Support is 0.7535.

In other currency market news, the coalescence of a number of factors saw the US dollar get absolutely hammered in Asia Friday. That trend continued across the course of the European and North American trading day although where the USD found its footing again versus the Euro and pound the Yen continued to strengthen – materially against the USD and on the crosses. What appeared to have seen the Yen as the primary beneficiary was concerned about the chances of the tax plan, Robert Mueller’s subpoenaing of Trump campaign officials and the BoJ saying it was reducing its bond buying at the front of the curve.

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