As we head into the new year, it is worth that the Australian dollar has had a relatively quiet year in 2016 only trading a range of around 10 cents compared to the 13-17 cent range it traded the previous 4 years, according to Greg McKenna, chief market strategist at FX and CFD provider AxiTrader.
He added that the big recovery in iron ore prices and the pick up in investor sentiment are the two major positive supporting factors for the Aussie dollar.
On the negative side we have a surging US dollar which is weighing on the Aussie.
“Clearly what this tells you is that the driver of AUDUSD moves and sentiment has been Trumponomics impact on the outlook for the US economy, US rates, and bond spreads,” McKenna said.
“That’s driven increased expectations that policy divergence is going to be a big theme in 2017,” he added.
That’s something both the Fed and Janet Yellen reinforced with last week’s FOMC meeting, decision, statement and dot plot. It was also reinforced by Janet Yellen’s ebullience about the US jobs market in her commencement address at Baltimore University this week, McKenna noted.
So the question for traders in the new year and beyond is whether the positives of risk appetite, and commodities can counter balance the negatives of a stronger dollar and bond spreads.
“To this end my read of the monthly chart was that the Aussie’s rally would continue into 2017,”
Looking further out it really depends on the US dollar it seems.
The potential repatriation of profits could provide a tailwind across the year and weigh on the Aussie. But the positive of an improved global growth backdrop should combine to see the buyers return, according to McKenna.
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