Aussie dollar finds support but still under pressure

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​​​​The Aussie dollar traded up to a high of 0.7394 last night and has found support at this level.

“It was a pretty good day for day traders across Asia yesterday with stocks and metals markets across the region having a solid day with a very positive sentiment. And that provided some support for the Aussie dollar,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.

However, he pointed out that the Aussie’s high was followed by weakness and a deep plunge – with the Kiwi after the RBNZ decision – which took the AUDUSD down to a low of around 0.7330/35 this morning.

According to McKenna, the fact that the Aussie found support at this level – as it had 24 hours previously – suggest there is a tentative buy zone building in that last 30-50 points in front on the trendline support stretching back to the 2015 low.

“The question is whether the stabilisation in the 0.7330 region is the precursor to a bigger move up and through 74 cents or just a pause on the way to 0.7280/0.7300 support,”

“As it stands right now the outlook is tending toward a bigger bounce. But I’m yet to receive an actual signal,” he said.

From a fundamental standpoint, McKenna said it is worth noting that some of the big bulge bracket investment banks are turning against Australia and the outlook for commodities.

Indeed, Goldman Sachs has questioned its own positive outlook for commodities in the past week.

Certainly, fair value estimates have come down with the turnaround in commodity prices rallies recently.

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“That is a weight on the Aussie and it’s clear further weakness is now expected by many,” he said.

He also pointed out that Reserve Bank Governor Lowe has been fairly quiet recently – occupied with housing no doubt – about the impact of the US Fed’s tightening cycle on the Australian dollar.

The Australian central bank was previously strident in its view that the US Fed’s tightening cycle would drive the Australian dollar lower.
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Many feel US dollar strength has mostly run its course. But as the move in USDJPY shows interest rate differentials and central bank intentions matter.

“So my sense is that many traders will continue to sell rallies in the Aussie dollar when they come,” McKenna said.

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