The Australian dollar traded to an overnight high of 0.7747 cents but seems stuck around that level in the short-term.
“That’s the highest level it has traded at since last November,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.
“But it looks like the Aussie is not yet ready to break above that level. At the moment, it is still meeting some resistance that puts a downside bias into the Aussie today,” he added.
However, McKenna pointed out that with the US dollar continuing to lose ground against emerging market and other currencies, the Aussie’s rally may not be done yet.
“Yesterday I wondered if it was time for the Aussie to break and hold above 77 cents. The price action of the past 24 hours suggests I wasn’t the only one who recognised that was a real chance over the weekend,” McKenna said.
According to McKenna, the reality is that this Aussie move is a combination of continued buying on dips and a recalibration of US dollar expectations after the US Fed Reserve’s decision to lift rates last week. Despite the rate increase, the Fed’s decision was seen as a dovish sentiment.
“Which is exactly why the US dollar didn’t rally hard last week. There was no surprise. But also, it’s exactly why there is not wholesale liquidation of the US dollar either,”
“Traders still think Trump’s stimulus is in the pipe,” McKenna said.
He added that means tonight’s speech by New York Fed president Bill Dudley and chair Janet Yellen on Thursday will be important for the US dollar, forex markets, and the Aussie dollar’s rally.
In the meantime, the release of the RBA’s minutes will be keenly watched.
“My take on Governor Lowe’s statement two weeks ago was that it could easily have accompanied an easing in policy or at least one that signals that the door is ajar to further easing,” McKenna said.
“What’s stopping him, and his colleagues at the RBA is the boom in property prices and investment lending. So, it will be interesting to see what the minutes reflect on this and whether the door could get pushed ajar once more,” he added.
According to McKenna, a rate cut would undermine the Aussie dollar’s rally.
But for the moment the bulls have it. Short term support is around 0.7704/09 with resistance at 0.7747 high on the day.
“Bigger picture 0.7780 is still a good chance and likely solid resistance unless the US dollar falls out of bed,” he added.
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