The Australian dollar rallied last night despite the odds against it.
“Despite the prospect of a weak GDP print for Australia’s first quarter and even with base metals weaker across the board in the past 24 hours, the Aussie dollar has continued to rally,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.
According to McKenna, the Aussie’s rally has been so solid that it traded up to 0.7521/22 which is the highest level since the collapse back in early May.
“The Aussie dollar is at an important juncture right now,” he added.
He also pointed out that the Reserve Bank of Australia’s (RBA) doubling down on its call – that the Australian economy is going to head back toward potential and above 3% in the years ahead – is certainly another bull point for the Aussie dollar.
However, McKenna said the RBA’s call appears to fly in the face of the many risks and headwinds facing the Australian economy.
“Not least of these headwinds is wages growth, large debt piles for Australian households and the impact these will have on consumption,” he noted.
In the meantime, the market will be looking for a 0.2% print for Q1 GDP.
“The chance of a negative number appears to have grown. But I’d also add that in my experience even with all the partials GDP can still surprise – in either direction,” McKenna said.
From a technical perspective, the Aussie dollar has some overhead resistance at 0.7520/30 which is both the recent high and the also the 200-day moving average.
“Many traders see this average as an indicator of a bull or bear market. So, if the Aussie can push up and hold above this moving average then the preconditions for a further rally grows,”
“Even the most casual observation of the chart shows we are at an important inflection point. Is the Aussie about to reverse and go lower? Or is it about to break out and charge toward 76 cents, maybe higher,” McKenna said.
At the moment, the weakness of the US dollar is the biggest push factor behind the Aussie dollar’s rally.
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