Aussie dollar rallies

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The Australian dollar is higher this morning at 0.7823 against a generally stronger US dollar.

That the high overnight was around 0.7835 means the Aussie is still stuck in that 100 point range of indecision I wrote about yesterday. But the performance to get to the top of the range is an important signal that perhaps this week’s data – and the strength of it – has reinforced to traders worried about the surprisingly weak retail sales that the outlook for the Australian economy remains on track.

My summary would be that continued strength in the NAB’s business survey, and a bounce back in Westpac consumer sentiment by 3.6% which put the index back in territory where the optimists outweigh the pessimists tells a more upbeat story about the economic outlook.

Throw in yesterday’s release of August data showing a record month of home loan lending – read debt accumulation in RBA speak – means also that consumers are confident enough o take on more debt. And the return of investment loans – which rose 4.3% in the month – suggests that RBA governor Lowe is not going to want to ease rates and add to the increased borrowing, or speculative excess that could unleash in housing.

So while we shouldn’t dismiss the big fall in August retail sales, and July’s downgrade, out of hand subsequent data has trumped that bearish outlook for the moment. At least for forex traders.

Throw in a global backdrop which looks like synchronised growth for the first time in a decade and only some serious policy errors are likely to derail continued positive growth and a solid economic outlook for Australia in the quarters and years ahead.

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And it’s this positive global growth outlook which is a key support as well.

Of course, in the end, the key driver of the AUDUSD at present is still going to be the USD which makes tonight’s CPI release an important stage gate as to whether the Aussie can rally up toward 0.7880 or reverses back inside this 100 point range between 0.7834/40 and 0.7730.

Chinese trade data today will also be important.

Looking at the charts and if 0.7840 gives way a run toward 0.7880/85 could occur. Support remains 0.7800/06 and below hat, 0.7770 and 0.7730.

In other currency news, US CPI is going to be very important for the dollar, and by extension forex markets, as we end the week. Forecasts are for an increase in US consumer prices of 0.4% month on month during September with a year on year rate of 1.9%. The core is naturally lower on both counts at 0.2% and 1.7%. A material deviation in either direction will get the attention of and a reaction from forex traders. It’s likely to confirm or deny this week’s bout of US dollar weakness. 92.55 looks like an important level to watch in DXY terms.

The CPI is important because that, in turn, drives outlooks for the relative moves of the Fed, ECB, and other central banks which in turn feeds into bond rates, yield curve slopes and forex rates. But with the Euro still above 1.18 even though it’s clear the Fed is settling toward a December rate hike and even after Mario Draghi warned that rates in the EU will stay low for a long time past the end of QE it is clear that US data flow needs to continue to feed the markets somewhat weak belief that there will be enough divergence to matter to the EURUSD rate. The Euro is around 1.1830 this morning and a break of 1.1790 would be a signal a move back toward last week’s low might be on again.

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USDJPY is looking interesting. And not in a good way for the shorts. It’s now spent the past 2 days trading inside Tuesday’s range. It’s still choppy, and the bias is still lower on my system but while 111.90 holds the chance of a bounce-back seem elevated.

GBPUSD had a wild ride last night trading through a 170 point range as traders worried about a hard Brexit and there were exalted by reports in Handelsblatt that the EU may indeed grant the UK its 2-year transition plan to Brexit.

Looking at the commodity bloc now and it’s been a good 24 hours for the Aussie and the Kiwi. The NZDUSD is atop the leaderboard of the major traded forex pairs with a gain of around 0.6% to 0.712. Technically it’s broken a steep little downtrend and move to the 38.2% retracement level of the latest fall can’t be ruled out. That would suggest 72 cents is now a chance. USDCAD is a little higher as the Canadian dollar lost ground under the weight of a stronger USD and falling oil prices. It’s at 1.2475 this morning.

The AUDUSD climbed to the second of the two targets yesterday making a high around 0.7835 before dipping back a little to 0.7820 this morning. It’s been a better week for the Aussie with more positive data reinforcing the RBA, not the bear’s view, on the outlook for the economy while the last 24 hours price action in metals is also supportive. Today’s Chinese trade data will be important in the short term but if 0.7840 gives way a run toward 0.7880/85 could occur.

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