Aussie dollar and emerging currencies rally

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The Australian dollar continues to recover along with emerging market currencies.

“It looks like traders and investors are focusing again on the upside of global growth, reflation, and the Trump trade,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.

He added, “If the global data flow continues to print on the stronger side of the ledger and if stock traders are going to believe in the data, then it is no surprise that the Australian dollar has again found support.”

McKenna pointed out the fact that the Aussie collapsed from above 77 cents when risk went off last week. He said this means that this current rally is not done yet.

He added: “It looks like the Trumponomics rally is as much about the actual improvement in the data as it is about expectations of the future in a Trumponomics world.”

That matters because global growth, and commodity prices are two of the 5 key pillars I look at when evaluating the Aussie dollar.

The others are technical indicators are interest rate differentials and the US dollar.

According to McKenna, the recovery in commodities and stocks has allowed traders to again focus on the upside and has improved risk appetite.

Naturally, the strength of the US dollar itself will eventually be a handbrake on the Aussie – most likely as it heads above 77 cents which it is now likely to.

At present, the positives of global growth and commodity markets, plus risk appetite outweigh that risk.

“And that’s all supportive of the Aussie dollar at the moment,” McKenna said.

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Among the emerging market currencies, the Mexican peso has gained 1.4% and is back at 18.75. The Brazilian, Columbian, Chilean, and Korean currencies – among others – are also stronger this morning.

As the UK triggered Article 50, The pound fell to the 1.2380 region before bouncing roughly 100 points to 1.2476 and then drifting back to 1.2415 where it sits this morning.

“That suggests there are sellers lurking overhead. But it is worth noting it is very early in the process and the big speculators are very, very, short sterling at the moment,” McKenna said.

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