Aussie $ bounces back

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The Australian dollar was hanging tough around 0.7820 before the RBA decision to leave rates on hold and the accompanying statement from Governor Lowe suggested strongly Australia’s central bank is in no rush to raise rates – even with an improving economic outlook.

That news knocked it down to 0.7790/95 before the US dollar strength in late ​​Asia early Europe trade saw it make an eventual low around 0.7784/85 before what’s now a solid run back to 0.7835 as I write. Actually, up on the day by 0.13%.

As has become the recent practice it is the US dollar’s moves which dominated the Aussie dollar’s recovery. That is going to be the key to where we end up at week’s end after a raft of US and global data gives traders a chance to better estimate the relative strengths of economies and in so doing the relative actions of central bankers.

There is plenty of water to flow under that bridge though in the days ahead.

In the immediate term, it is worth summarising what I believe the RBA governor was trying to say yesterday – as it relates to forex traders and the Aussie dollar.

I’ve unpacked the governor’s statement fully in my earlier market wrap this morning but suffice to say it was a masterclass of balance between the strength of the Australian economy, its headwinds, and the perfect blend of upbeat and caution which conveyed the message the RBA is on hold for a while yet.

There was some contention across the Twitterverse that because the paragraph which directly addressed the exchange rate hadn’t changed much that I might have been over-egging my view governor Lowe was sending a strong signal to forex traders and Aussie dollar bulls.

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But no one reads a central bankers statement as isolated paragraphs. Surely?

So, what I believe Lowe did – in layman’s terms – is say a stronger Aussie restrains both growth and inflation and that would feedback into interest rate expectations thus rendering the bullishness void. So, the RBA is on hold – and for some time it seems.

Looking to the price action now and the daily charts suggest some signs of the Aussie trying to base. Certainly, yesterday’s candlestick is a positive sign. But as we saw last week a similar bounce was quickly followed by a fall.

The Aussie needs to break 0.7860 to kick higher. Support is 0.7780/85 then 0.7745/50 and 0.7650/60.

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