The Australian dollar rallied to a high of 0.7609 last night, but was pushed back by sellers and is now back trading at .7579 level.
“That’s not a huge move by any stretch of the imagination,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.
“But it (Aussie dollar) is still showing signs of being under pressure.”
However, McKenna said this afternoon’s statement from the Reserve Bank of Australia (RBA) may provide some support for the bulls if it again highlights the positive outlook for growth with little prospect of rate hikes.
“But Governor Lowe might just take the opportunity to subtly jawbone the Aussie dollar lower,” McKenna said.
In the meantime, he also noted that traders have been sanguine about a clear message from the US Federal Reserve’s indication of a March rate hike.
He also pointed out that reluctance of traders and investors to add to their US dollar longs in this environment has helped the Australian dollar find some support again overnight.
But there are subtle signs that the key drivers of the Aussie rally – commodity prices, investor risk appetite, stable interest rate differentials – have turned negative for the Aussie in the past week or so.
This turn has coincided with a market which went as long as it has been since the Aussie’s failed attempt above 78 cents last April, McKenna noted.
“That means there is potentially plenty of supply overhead on any rally in the Aussie,”
“That’s doubly the case because the turn in the Aussie and its drivers accords with many investors forecasts of the outlook for the Aussie dollar,” McKenna said.
On the RBA statement this afternoon, McKenna said: “If, as Governor Lowe told a parliamentary committee two Fridays ago that rate cuts are off the table because of the potential impact on housing prices, then a lower Aussie dollar is the best way to add stimulus to the economy.”
He added, “How Governor Lowe can engineer such a move in his statement today, when he’s likely to reinforce the strength of the domestic economic outlook, is difficult to guess. Unless of course he highlights that the RBA expects commodity prices are going to pull back from recent highs.”
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