The Aussie dollar balances between the Korean tensions and risk aversion

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Despite the continued chest beating from North Korea, the Aussie dollar has remained firm as traders weigh an upbeat outlook with risk aversion.

“Markets are taking the material uptick in tensions on the Korean peninsula mostly in their stride which means the Aussie dollar, while lower, is actually holding in reasonably well,” said Greg McKenna, chief market strategist at FX and CFD provider AxiTrader in Sydney.

“Sure it rallied back into the black at one point yesterday making a high around 0.7970 as the buy-the-dip crowd entered the fray before pulling back again. But at 0.7943 this morning it’s only 23 points below the close on Friday night in New York.”

According to McKenna, the Aussie dollar has remained firm, which is a strong sign given the geopolitical risks that the face off between North Korea and the rest of the world suggests.
“I think the markets are far too sanguine about the potential for conflict. Even the Russians say that sanctions alone won’t help solve this issue,” continued Greg.

But it was US Ambassador to the UN, Nikki Haley, whose comments have not left a lot of room for manoeuvre as she commented ‘When a rogue regime has a nuclear weapon and an ICBM (intercontinental ballistic missile) pointed at you, you do not take steps to lower your guard. No one would do that. We certainly won’t.”

Yet in all this back and forth posturing, Greg noted, “There is only a mild bout of risk aversion given statements like that and the Aussie dollar is still nicely ensconced above 79 cents.”

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The Aussie dollar has remain firm due to the strength of the domestic economy

McKenna identified a few points about the RBA’s decision on interest rates, stating, “The RBA is going to find it difficult to be anything but upbeat about the outlook. Certainly, the local jobs market has enough slack to allow rates to stay where they are for some time. Likewise, inflation pressures remain dormant right now.”

“So the RBA can easily make the case for leaving the official cash rate at the record low of 1.5%,” continued Greg.

“But the rest of the statement is likely to be upbeat and supportive of the Australian dollar. Indeed were it not for the uptick in tension on the Korean peninsula and associated mild risk aversion traders would be focussed on a move toward the highs for this year around 0.8050/60.”

On the technical front, there are a few key areas for traders to focus on, “The Aussie dollar is not far off the uptrend line from this rally either – that sits at 0.7928 at present. Thursday low at 0.7920, if it breaks, would confirm the move. The focus would then turn to 79 cents and – more particularly – the 0.7965/70 region where the Aussie found support. Below that it’s the August low in the 0.7800/10 region.”

On a positive note, “A topside a break of 0.7995 would be a sign the rally is back on,” suggested McKenna.

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