The Australian dollar continues to get caught in the middle as the bulls and the bears fight for control.
“The Aussie dollar started the week on a firm footing on the back of a mildly weak US dollar and relatively stronger iron ore prices,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.
“But like dragon fire, the bears laid waste to the bulls in a few short hours chasing the Aussie back to a low around 0.7898,” he added.
This morning the Aussie is trading at 0.7912 and under a little pressure along with its commodity block cousins the Kiwi and Canadian dollar, McKenna noted.
According to him, the tug-o-war between the bulls and the bears is as much a battle between the usual drivers of an Aussie dollar rally.
“It’s the usual suspects including commodity prices, investor sentiment, risk appetite, global growth, and Australian growth,” McKenna said.
From his perspective, McKenna said combining the domestic and international outlook with the recent rally in commodities it is easy to see the bulls case.
“The bears on the other hand fret about the impact of an Aussie up here will have on growth,”
“The bears worry commodity price rises – especially iron ore – will prove ephemeral, and they highlight the deviation of the Aussie dollar from fair value models which are based on the prices of the very inputs that the make the bulls case,” he said.
McKenna pointed out that “There is a strong fundamental case for a relatively strong Aussie up here near 80 cents. But there is an equally strong fundamental case that even with all the positives the Aussie is too high and at the upper end of the “valuation” band – and should fall as a result.”
Given that the bulls and the bears are fairly evenly matched at this stage, McKenna said the release of the NAB Business survey and the Chinese trade data will be of ‘utmost importance for the Aussie dollar.’
“We can see that conditions and confidence remain solid and above long run averages. Trading, profitability, and employment sub-indexes are also showing strength as well. The strength has been broad based,”
“A continuation of that trend will reinforce the message traders have garnered from recent data flow that the Australian economy is doing quite well in both absolute and relative terms,” he said.
Chinese trade data is also an important bellwether for the Aussie because it influences opinion on growth in China, global growth, and the subsequent knock on impacts of both on Australia, McKenna noted.
Key to watch are the growth rates of Exports and Imports which are expected to moderate a little from last month but not collapse.
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