The Australian dollar is facing a crucial week on the back of the Reserve Bank of Australia’s (RBA) decision tomorrow.
“The Aussie is back up near 77 cents, but a continuation of positive expectations is no guarantee the RBA can shift the Aussie up and through the 77 cents level,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.
He noted that the 77 cents mark and above have been the graveyard for bulls in 2016.
At the moment, McKenna said the risks are skewed to traders focussing on any negative news rather than buying with gusto on positive flow.
“That makes the release of retail sales and monthly inflation data for December – to be released this morning – vitally important in setting up the week ahead for the Australian dollar,” he added.
There’s a raft of important economic data out this week including RBA’s rate decision (tomorrow) and the quarterly Statement on Monetary Policy on Friday.
“Both these events are important for the Aussie dollar because while there is little expectation that the RBA will cut rates this month, their thinking on the outlook for the Australian and global economies will be important for Aussie dollar sentiment,” McKenna said.
Retail sales are also out this morning and the market is expecting a print of 0.3% after November’s disappointing 0.2% growth ended what had been a strong uptick in sales over the previous three months.
Looking at the technical, McKenna said it’s fair to say President Trump would be proud of the wall at 77 cents that appears to be holding back the Aussie dollar bulls once more.
He said, but while 77 cents looks like it remains a formidable resistance level on a daily close basis, the overall uptrend and higher lows remain obvious.
“For the longer-term, I believe a combination of heavy US dollar longs, Donald Trump’s apparent distaste for a strong dollar, and German Finance minister Wolfgang Schäuble’s admission that the Euro is too weak for Germany sets up a US dollar sell-off,”
“And the Australian dollar will benefit from that,” McKenna said.
In the meantime, the US dollar remains under pressure against other majors like the Euro and the Japanese Yen.
“The US dollar index has now fallen for six weeks in a row,” McKenna noted, adding that: “Of course that’s not surprising given the comments last week from both President Trump and his top trade guy that the US dollar was too strong.”
He added, “if the US dollar is at risk of a break lower that means the Yen, the Euro, the Aussie dollar, and of course the Mexican peso which has surged recently, could all surge.
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