Aussie dollar did nothing and went nowhere the past 24 hours

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Short and sweet today because not happened in Aussie dollar trade save for the volatility around the release of the employment data yesterday as traders initially focused on the fact that the 3,700 rise in October jobs was a decent miss on the 17,500 expectation. But then they focused on the fall i​​n the unemployment rate to 5.4% which decided that the increase of 24,300 full-time jobs.

So, the range for the AUDUSD for the past 24 hours of 0.7568 to 0.7609 was actually the range in the minutes after the release of the jobs numbers yesterday.

The rest of the time the Aussie has traded a very tight range as traders await the next shoe to drop.

The passage of the House tax bill wasn’t yet that catalyst with forex traders across the globe nonplussed about the passage so far. As I highlighted earlier this morning, that’s likely because there remain residual risks around the ability of the Senate to get its bill passed and then for the two bills to be reconciled. If that happens though – full passage and a bill to sign into law on President Trump’s desk – then there is every chance that the US dollar does find a strong bid.

I say that because as you can see in the US Fed comments, there is a strong consensus to continue to hike rates even before the additive impact to growth that these tax cuts would represent. This is late cycle fiscal stimulus with an economy close to full employment. Thus, traders are likely to upwardly recalibrate their expectation of just how many Fed hikes are likely to happen in 2018. From 2 to 4 would be a big leap and be very supportive of the US dollar.

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And that would put downward pressure on the Aussie dollar with the potential to drive the Aussie-US 2 year bond spread into negative territory as the RBA is likely to keep rates on hold for an extended period given the headwinds facing households.

I covered the importance of this spread for the AUDUSD in yesterday and the day before in the Australian dollar columns.

So that’s a natural downward force on the AUDUSD which through time will compete with the natural positives that accrue for the uptick in global growth and its synchronised nature.

But the Aussie has to compete with Aussie assets to gain entry to investors portfolio’s and onto traders’ radar. And the question of relevance I’ve been raising recently remains.

That’s for later though.

Looking at the charts today and the dailies show the overall downtrend continues. But within that, the 4-hour charts suggest the Aussie’s stability has it close to breaking the smaller downtrend after an indecisive day’s trade.

That level is 0.7598 this morning. But it’s likely only a break of yesterday’s high at 0.7609 would get the buyers excited. On the downside support, very short term is 0.7580 then 0.7565. A break of the lower level suggests the move toward 0.7485/15.

In other forex market developments, currency markets, and traders therein have not reacted overly to the passage of the House tax bill. That’s likely because there remain residual risks around the ability of the Senate to get its bill passed and then for the two bills to be reconciled. If that happens though – full passage and a bill to sign into law on President Trump’s desk – then there is every chance that the US dollar does find a strong bid. I say that because as you can see in the Fed comments above, there is a strong consensus to continue to hike rates even before the additive impact to growth that these tax cuts would represent. This is late cycle fiscal stimulus with an economy close to full employment. Thus, traders are likely to upwardly recalibrate their expectation of just how many Fed hikes are likely to happen in 2018. From 2 to 4 would be a big leap and be very supportive of the USD.

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USDJPY is trapped and GBPUSD is going nowhere.

The Kiwi remains pressured but has support at 68 cents and the CAD (in USDCAD terms) is moving along one of my favourite, and useful trendline in forex markets at the moment.

Last night Canadian factory sales beat expectations which helped the CAD appreciate a little against the USD but this trendline is still holding firm. A break would signal further CAD strength.

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