Bullish traders pushed the Australian dollar around .7550 cents this morning after it held support last Friday.
“The Aussie dollar is opening the week on a much better footing than many would have expected on the back of a strong US non-farm payrolls data,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.
He added that the seeds of the Aussie’s rally were sown in its resilience above and ability to hold the 0.7490 level last Friday.
According to McKenna, the US dollar failed to capitalise on very solid non-farm payrolls
“The strong jobs numbers almost guarantee a rate hike from the US Federal Reserve this month,” McKenna said.
He pointed out that some of that US dollar’s weakness no doubt came from “sources” who suggested the European Central Bank (ECB) might be closer to raising rates than markets believe.
“But I wonder also if this week’s G20 meeting and leaks about changed language around protectionist policies and currency levels hasn’t also weighed on the US dollar,”
“That naturally helps keep the Aussie dollar higher,” he said.
McKenna described the US dollar’s performance as ‘intriguing’ given that the US Fed is about to raise rates as the US economy approaches full employment.
“The fact that the greenback did not surge on the back of the strong jobs numbers and the almost certain rate rise from the US Fed is both intriguing and important for the Aussie dollar outlook,” McKenna said.
He added he is expecting a fairly hawkish hike this week as opposed to the almost apologetic hikes we saw from the Fed in 2015 and 2016.
Recall that Janet Yellen specifically said that 2017 is not either of these two years a couple of Friday’s back when she spoke.
But before the US Fed announcement, traders will have to think about the rumours that say the ECB is closer to changing policy than it says.
There have been murmurs floating around that G20 will omit language about protectionism and commitment to free floating exchange rates.
There are also speculations that recent comments from US Treasury Secretary Mnuchin may signal an end to the strong US dollar policy.
“Is it possible that the current Trump administration may explicitly be walking away from the policy and may signal it wants a weaker policy?”
“That means the clash between the US Fed and the Trump administration may be a complicating one for forex markets – and the Australian dollar this week,” McKenna said.
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