The Australian dollar is higher this morning after the US dollar’s rally faltered yesterday in what is becoming a common event of Friday strength fading on Mondays. It wasn’t a big dip but with Iron ore up more than 5%, copper rallying more than 1%, the Aussie finds itself back up near 77 cents this morning at 0.7687.
That’s a gain of around half a percent which is a little stronger than the moves seen in the Kiwi and CAD which are up around 0.45% this morning. The low over the past 24 hours was within a point of Friday night’s low in a signal that the Aussie dollar, a bit like the Kiwi and the CAD, may be trying to form a base here at the moment.
But while the metals and minerals rally continues to support, the Aussie traders have to navigate the release of the RBA’s November board decision and governors statement at 2.30pm AEDT today.
RBA could take a dovish tilt
I’ve made the case in my Market Musing earlier why I think the RBA could take a dovish tilt in the governor’s statement and then with a more detailed explanation of the potential uncertainty for domestic and household consumption in the quarterly Statement on Monetary Policy this Friday.
But to quickly recap my thoughts on the RBA it is fair to say that no one really expects the RBA to move rates today. But, that said, there is a real chance that of a change in tone from governor Lowe who has consistently shown himself to be both optimistic about the outlook for the Australian economy while simultaneously concerned about domestic consumption – specifically households – as a headwind for growth.
In last month’s statement, he juxtaposed “consistent signs that that non-mining business investment is picking up” with the reality that “slow growth in real wages and high levels of household debt are likely to constrain growth in household spending”.
So the question is whether the last two month’s retail sales is in the RBA forecasts or whether both the -0.6% print for August and the 0.0% print for September – both of which have been released since the October 3 RBA board meeting and governor’s statement – are fresh inputs into RBA thinking.
Of course, I could be completely wrong. In which case the Aussie will like find further support if metals and iron are still bid.
We’ll know at 2.30pm and whichever way that goes will impact the Aussie dollar.
A dovish tilt would likely knock the Aussie lower but it clearly has very strong support above the low of two Friday’s ago around 0.7625 and only a break of that level would see further selling.
US dollar strength fails to follow through
In other forex news, for what feels like the umpteenth Monday in a row US dollar strength to end the week failed to materialise Monday. It’s something that you can’t fail to miss when trading and it is something that really brings into sharp focus this constant theme I’ve been chatting about which is that this is still not yet a bull market for the US dollar. A big part of that presently is movement at the US Federal Reserve and the uncertainty about what that might mean for policy. A big part of it is that US longer rates simply can’t hold higher levels and find a bid every time 10-year rates head above 2.4%. And a big part is that data in Europe continues to print so much better than forecasters are still coming to terms with. The Citibank economic surprise index for Europe is still sitting at 61.8 right now. That’s the fundamental handbrake on the US dollar’s move.
So the USD Index holds below 95.25 for now and the Euro recovered from a dip below 1.16 yesterday. It’s still the case that 1.1570 has to break in EURUSD to take out the low from a week or so back and get the market moving and maybe drag some of the still very long speculative market into selling.
Yesterday’s move in the Yen made no sense to me. It came in the wake of President Trump’s criticism of Japanese policy toward trade and specifically motor vehicles. That the Yen weakened made no sense because it was exactly counter to what Trump would have wanted. So we made a marginal new high for this run at 114.73 before USDJPY fairly collapsed. I’ll check my signals this morning but the USDJPY chart is starting to look like a sell sometime soon. A break of 113.50 might do it.
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