The Aussie Dollar holds strong as markets brush off North Korea’s missile launch

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The Australian Dollar has shown resilience as the low 79 cent level held firm in overnight trading.

“The Aussie dollar did reasonably well given the acute bout of risk aversion we saw in Asian and European trade over the past 24 hours,” said Greg McKenna, chief market strategist at FX and CFD provider AxiTrader in Sydney.

He added that the low around 0.7905 was a pretty solid one considering gold leapt to around $1,325, USDJPY fell to 109.25 yet the Aussie maintained a bid above 79 cents.

“The Aussie dollar is back at 0.7950 this morning as the tensions in markets have abated. Even though the US dollar has recovered across the board, knocking the Euro Dollar 100 points from its high and driving the Japanese Yen 140 points from its low.”

McKenna noted the risk on risk off nature of the Aussie dollar, “If you ever needed proof the Aussie dollar is a risk on, risk off currency, the last 24 hours makes the point strongly.”

Aussie dollar strength is underpinned by solid fundamentals

McKenna went on to explain why the Aussie dollar continues to hold firm at these levels.
“The overall ability of the Aussie to hold above 79 cents is solid. It suggests that without the tensions surrounding North Korea that global investors, and traders, still see the supports that underpin the Aussie Dollar – solid domestic and global growth, relatively strong metals (and mining shares), and a benign to hawkish RBA outlook on rates – as key drivers of its value.”

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The North Korean threats and the impact on the Aussie Dollar

“But North Korea as an issue has not gone away. The US and Japan are so far showing restraint using words, not military force. Yet again this morning North Korea has been rattling its sabre and threatening Guam,” McKenna noted.

“Reuters reports that the state run media service says that yesterday’s missile launch was “first step of its military operation in the Pacific and prelude to containing Guam”. It also noted the launch was a “drill” to counter the US-South Korean war games.”

McKenna added, “North Korea appears to want to push the envelope until the US and the west either accepts North Korea as a nuclear power (with a growing power to strike its neighbours and the US) or the regime is obliterated and the peninsula engulfed in war once more.”

Key Aussie dollar levels to watch

McKenna cautioned, “North Korea is one element Forex traders need to watch closely, because if risk goes off the Aussie will come under pressure again. This time 79 cents is unlikely to hold.”

“Looking at the charts now, the parameters to watch on the dailies are the trend line at 0.7895/0.7900 and the previous night’s high of 0.7982,” he said.

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About AxiTrader

Back in 2007, AxiTrader was founded on a simple idea: to be the broker we’d want to trade with. We’ve since grown to become one of Australia’s largest and leading Forex brokers.  Investing in over-the-counter derivatives carries significant risks and is not suitable for all investors. You could lose substantially more than your initial investment.

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