The Australian dollar failed again above the .76 cents level last night as the US dollar regained some footing.
“But all indications show that a weaker US dollar is clearly favoured by president Trump and his team,” said Greg McKenna, chief market strategist at FX and CFD provider AxiTrader.
He added: “That puts upward pressure on the Aussie and other currencies against the US dollar. And that means the Australian dollar is coiled for a break higher.”
Naturally it’s not just the US dollar driving the Aussie’s moves. Things like the strength shown in the NAB business survey yesterday or the continued growth in investment borrowing for housing are also important – because taken together they reduce the risk of another cut from the Reserve Bank of Australia (RBA).
But according to McKenna, since the US presidential election markets have been all about Trumponomics, reflation, the US dollar and the US Federal Reserve.
Now that Trump is in the White House, it is of note to see that the US dollar has weakened for the sixth week in a row. McKenna said there’s a couple of reasons for the greenback’s weakness relative to other currencies.
“First, markets are rethinking Donald Trump, his presidency, his policies, his execution, and also the potential efficacy of his presidency,”
“In doing so they are reducing – or at least rethinking and not adding to – positions in stocks and the US dollar,” McKenna said.
The second, more forex specific, is that it is clear the president and his administration hate the strong US dollar and want to use it as a trade tool.
“So yes, Trump would love a weaker US dollar. Throw in increased uncertainty and we have the US dollar and the crosses it’s paired against ready to break,” McKenna said.
For the moment and from a technical point of view, a break of 0.7610/20 opens the way for the Aussie dollar to move higher to 0.7650/6- and then 0.7720/40, McKenna said.
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