Aussie dollar holds its ground; poor US data keeps US dollar on leash


​​The Australian dollar is holding its ground on the top range of .75 cents despite a fightback from the US dollar.

“At .7580 this morning, that’s not a terrible performance (for the Aussie dollar) by any stretch of the imagination,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.​​

He added: “Indeed the Aussie did better against the US dollar in the first 24 hours trade of the week than any of the other majors.”

“Overall forex markets are unchanged but that belies the US dollars recovery. Of note, the Aussie made an assault on 76 cents again before the bulls were chased back. But at 0.7580 it is still 0.2% higher day on day,” he said.

However, despite the Aussie dollar’s positive performance, McKenna pointed out that there is more evidence that international investors are moving on from Australia in search of better markets.

Overnight, the weakness in US durable goods and Chicago National Activity Index was a pretty good reason for the US dollar to fall last night.

“The awful US data flow remains a handbrake on the US dollar,” McKenna said.

“Is that just the northern hemisphere summer induced doldrums or is it something more. It is too early to tell because one day of ignoring data – like one swallow – does not a summer make,” McKenna said.

According to McKenna central bank outlooks matter, and statements from US Fed NY president Bill Dudley over the past 24 hours juxtaposed with those from European Central Bank President (ECB) Mario Draghi highlight the Fed is still going to tighten and undertake negative QE, while the ECB sits pat.

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In their recent statements, Draghi said Europe still needs accommodative policy while San Francisco Fed’s Williams said inflation is still on track to hit 2% in 2018 and more rate rises are on the way.

McKenna said: “But for me what’s important for currency markets is that Dudley expanded the Fed’s mandate in a way that suggests he sees the Fed with a broader remit than just inflation and unemployment.”

Dudley said, “when financial conditions ease, as has been the case recently, this can provide additional impetus for the decision to continue to remove monetary policy accommodation,” he said. That means broader financial conditions should be taken into account when the Fed is setting policy rates.

And that means more rate rises and negative QE in the US via the rundown of the balance sheet.


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