The Australian dollar has found support above the .76 cents region but looks vulnerable at the moment.
“The Aussie dollar bears that dominated the market yesterday are now back on the side lines, thanks to the US dollar’s weakness overnight,” said Greg McKenna, chief market strategist at CFD and forex provider AxiTrader.
He added: “As it seems, it’s still the case that where goes the US dollar, so goes the Aussie.”
According to McKenna, with USDJPY back under 112 and the Euro hanging on near 1.07, it’s no surprise that the Aussie is holding 76 cents.
RBNZ holds and Kiwi falls
While it has been a quiet 24 hours for the Aussie, the Reserve Bank of New Zealand’s (RBNZ) decision to hold off on rates had the Aussie dollar-kiwi (AUDNZD) pair afloat.
The RBNZ has always been keen about the kiwi’s apparent overvaluation, and today’s dovish announcement from the RBNZ held not much surprise.
According to McKenna, “Their desire for a lower NZD has seen the Aussie Kiwi (AUDNZD) rate bounce back to 3 week highs after getting hammered in the past day or so when the Kiwi rose to 0.7375 against the US dollar.”
He added that, “While it’s not exactly currency manipulation, in signalling the New Zealand economy would benefit from a lower exchange rate, the RBNZ is walking straight onto the firing range president Trump has set up for those nations which seek to use devaluation as a tool of economic growth,”
“Words are powerful. Especially when they come from a central bank with a high degree of credibility,” he added.
Forex traders got the message (from RBNZ) and sold the Kiwi lower.
Naturally, given Australia’s trade relationship with New Zealand, RBNZ governor Wheeler isn’t just targeting the NZDUSD rate but also the AUDNZD.
“But a falling Kiwi begs the question of whether or not Aussie dollar traders will sell in sympathy or whether they will separate the commodity cousins and drive AUDNZD up and through 1.06,” McKenna explained.
This is an interesting question and one that largely depends on the outlook for the US dollar – yet again.
“A weak US dollar and Aussie dollar could outperform the Kiwi but once the dollar starts to strengthen, both the Aussie and kiwi value come under pressure,”
McKenna added, “That battle is still being waged as the moves in Euro, USDJPY, and the US dollar index overnight show.”
In the immediate term, there is little fresh impetus for trade in Asia. Nevertheless, movements of the Aussie dollar could somehow be felt as the Reserve Bank of Australia (RBA) releases its quarterly statement on monetary policy tomorrow.
Equally, the release of Chinese Trade and loans data tomorrow will be key to how the Aussie ends the week. With only these data releases, traders might only have the charts as their roadmap.
“And on this front, even with yesterday’s recovery the Aussie still looks a little vulnerable in the short term,” McKenna said.
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