Aussie dollar at its highest level in a month

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I thought the Aussie dollar might have been higher this morning after the November employment report shot the lights out with the strikingly positive 61,600 rise in employment. Certainly, the fact that the data was more than 3 times what economists expected and that 40,000 of those 61,600 jobs were full time got the AUDUSD rocketing higher to hit a one month high of 0.7679 overnight.

At 0.7665 now, it’s still had a great performance on the week so far given it closed last Friday at 0.7504 and made a low on Monday of .7500. It’s not quite an outside week break up – which would be very bullish – because last week’s low was 0.7498. But the 2.15% gain on the week so far is solid.

Nonetheless, I had thought the Aussie could have had a run at 77 cents certainly and perhaps, even the 38.2% retracement level of the big fall from just above 81 cents. That level comes in today at 0.7731.

The fact that the Aussie could not approach 77 cents let alone that Fibonacci resistance is a testament to the very solid US retail sales data overnight. Indeed, that 0.8% print for November sales, and the upgraded October print from 0.2% to 0.5%, along with the previous day’s solid CPI rise of 0.4% saw the Atlanta Fed’s model forecast for GDP growth increase to 3.3%.

So the US dollar caught a little bit of a bid.

That likely restrained the Aussie. But as I wrote earlierthis morning, this Aussie dollar rally is about the Aussie, its drivers, and a little selling exhaustion down at 75 cents.

Specifically, this absence of sellers allowed the Aussie to get a bit of a lift and since then, the rally in base metals (copper in particular), the combination of solid NAB business survey, a bounce in consumer sentiment, a lift in the bond spread back into positive territory (I know, just), and yesterday’s stellar jobs data all combined to drive the Aussie to the overnight high.

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But, as Miss Du from China’s SAFE once said to me when I was skiting about my call the previous year, – “Mr McKenna, that was then. What about now?”

That’s where it gets a little more difficult.

On the US side of the cross, it is true that the USD can hardly take a trick. That the strength of growth, the Fed’s tightening cycle, and their stated intentions – via the dot plot – are being discounted by a market fascinated with the flattening of the US yield curve and the supposed chance of a recession.

Seriously?

Indeed, yesterday I heard folks saying that the two dissenters to Federal Open Market Committee (FOMC) decision were actually shadow dissenters on behalf of others who didn’t want to break with Yellen on her last meeting. Again, seriously? That’s not what the dot plot suggests.

Anyway, for the moment the USD’s woes and lack of conviction in the Fed’s outlook on the market has helped the Aussie.

Likewise, on the Aussie side of the cross improved metals, especially copper, coupled with what is a positive outlook for the economy as we head toward 2018, and the proximity of the 2-year trend line have seen sellers back off for the moment.

As I noted earlier this week, Tom DeMark said it’s the absence of buyers or sellers which are important in markets forming tops and bottoms. So sellers backing off was and remains important. Yet they may return in the vicinity of the 200-day moving average which comes in at 0.7690/95 at the moment.

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So can the Aussie trade to 0.7730?

That Miss Du, is an interesting question.

For the moment the Aussie is overcooked short-term and looks like it needs a rest. The 4-hour charts suggest a pullback to 0.7605/15. But that level is likely to hold for a test of the 200-day moving average and if that breaks 0.7730, and if that breaks 0.7800.

In other forex market developments, the lack of unifying narrative in forex markets continues. You can probably tell from my commentary above about the US retail sales and the Fed that I think that will change at some point for the USD if this current run of economic strength continues – as I believe it will. But for now, we have a bunch of different narratives and drivers working at an individual level.

Take the Australian dollar as an example. Earlier this week – in my AUDUSD daily piece – I talked about the absence of sellers allowing the Aussie to get a bit of a lift and since then the rally in base metals (copper in particular), the combination of solid NAB business survey, a bounce in consumer sentiment, a lift in the bond spread back into positive territory, and yesterday’s stellar jobs data in Australia combined to lift AUDUSD up to it’s highest level in a month here this morning at 0.7673. It’s about the Aussie and its drivers.

​​EURO

Likewise, the Euro this morning is down a little as Mario Draghi tried his best to sound dovish. He’s walking a fine line here because it’s clear the time for emergency measures has well passed. But the European Central Bank (ECB) clearly has an internal factional battle going on between the hawks and doves. Indeed, Bundesbank president Jens Wiedemann said this morning that ECB policy is contributing to deceptive calm. It is, just look as European corporate bond spreads. But the ECB also doesn’t want the Euro to shoot to 1.25 or 1.30 it seems. Thus, Draghi’s dovish noises as he walks this fine line. Clearly, the markets think he will fold though. Otherwise, Euro would be lower than the 1.1788 level it is at as I write.

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​​CAD

The Canadian dollar has it’s own narrative, too. It’s stuck in a box at the moment against the USD. But twice in the last 6 or 7 trading days Canadian related factors have seen big falls in USDCAD. First, it was the stonkingly good employment report two Friday’s back and then this morning’s hawkish comments from governor Poloz. I’ll respect this box while it holds. But if it breaks we could see a big move in the USDCAD.

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