Aussie Dollar pulls back on a stronger US Dollar

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The Aussie Dollar is under some pressure but expectations of solid fundamental reports could support it at current levels.

“With the US dollar’s strength returning in the past 36 hours we’ll now get to see how much support the Australian dollar really has at the moment, and here at 79 cents. Iron ore has reversed a little from its recent peak and looks a little pressured and Copper off its top while the Japanese Dollar and Euro Dollar are around 200 points from their respective low and high for the week,” said Greg McKenna, chief market strategist at FX and CFD provider AxiTrader in Sydney.

“Yet the Aussie is still sitting atop 79 cents. That’s a solid performance all things considered. But right now the Aussie is starting to slip below the uptrend line from the last 2 month’s rise.”

Greg highlights why the Aussie Dollar slipping below support is a big deal, “In many ways slipping below the trendline at 79 cents is now big deal – assuming that’s where the Aussie Dollar ends up later today – because the 78 cent support is likely to remain firm in the current environment.”

Fundamental data supporting a firm Aussie Dollar

McKenna added, “Indeed just last night Moody’s Investor Services released its latest forecasts for G20 economic growth which it sees as holding above 3% over the course of 2017 and 2018.”

“It upgraded Chinese growth to 6.8% from 6.6% previously while at the same time increasing expectations for South Korea to 2.8% from 2.5%, and Japan’s growth estimate from 1.1% to 1.5%. Taken together these forecasts are bullish for Australia because it increases intrinsic support for its economy and by extension the Australian dollar,” Greg continued.

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McKenna asks the questions about the Aussie Dollars performance when the US Dollar is strengthening, “The question now however is how the Aussie performs in an environment where the US dollar strengthens. Readers know that this is something I have been looking for as US dataflow improves.”

In regard to US Dollar strength, Greg comments, “Last week was a setback in terms of data flow. But the overnight release of Q2 GDP of 3% annualised and a strong ADP employment report has driven the Citibank economic surprise index for the US up to -21.2. That’s it’s best print since early May.”

Key economic data due out of Australia

“Closer to home though the release today of Capex data is going to be important for expectations about the path of Australian growth,” McKenna added.

“There is a wide range of forecasts for the Q2 number but the net balance is an expectation it will rise 0.3% from Q1. In terms of expectations about the third read of Capex intentions for this financial year forecasts seem to centre on a number around $96 billion.”

Greg cautions that “Any deviation from these numbers could cause a reaction for the Aussie. Likewise so too could the release of the NBS manufacturing and services PMI’s for China today.”
“In summary, the Aussie is under a little pressure and a move back to 78 cents wouldn’t surprise. Only a break of that level would materially alter the outlook,” noted McKenna.

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