Aussie dollar sharply higher as US dollar weakens

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The Australian dollar’s rally continued overnight and at 0.7634 this morning, it is up a little more than 1% on where it was this time yesterday.

A large part of that rise has been the weakness in the US dollar over the past 24 hours. It’s a weakness which makes little sense when taken against a backdrop of a US Fed tightening, a strong signal of more, and a positive outlook for the economy in the year and years ahead.

But traders, investors, and the market, simply don’t believe either the Fed will act on the “dot plot” or don’t believe the US economy is going to perform as they expect.

So, the big US dollar is lower and the Aussie dollar up and out of the recent downtrend.

Because this is largely a US dollar move, how far and how fast the Aussie heads higher, or how sharply it turns around are largely going to be driven by the other side of the cross.

But, that said, today’s November employment data is still likely to be a potentially big catalyst for traders.

The Reuters survey says the market is expecting a rise in employment during November of 18,000 and an unemployment rate of 5.4%. Given the enduring strength of the NAB Business survey employment sub-index and given that Westpac’s consumer sentiment report yesterday reported consumers fears of unemployment are falling that seems a reasonable assumption.

Such a result would likely push the Aussie up to challenge the recent high a 0.7653. Should it break then the 0.7730 region – 38.2% of the recent downtrend from 81 cents – would be the next target.

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US dollar

In other forex market developments, as I wrote earlier this week the USD just can’t take a trick. Traders are so uninterested in it that the vote in the UK on the floor of the Commons where this morning Theresa May lost and British MPs will now get a vote on the Brexit deal has done nothing to dent Sterling and indeed it is up 0.7% at 1.3410. It has underperformed the Kiwi which is the best performer of the big traded currencies with a 1.24% gain to 0.7018 (not a typo) in what has been a really poor night’s trade for the big dollar. Euro is 0.66% higher at 1.1818 and the Yen has gained 0.85% with USDJPY sitting at 112.55. The washup is the USD has lost 0.67% in USD Index terms and is languishing back at 93.475.

Like oil, the price action in the US dollar is very instructive behaviourally. I don’t want to belabour the point but where prices go in the face of fundamental drivers gives us all an insight into the psyche of traders and where their bias is at the moment. And, as I continue to write even though stock traders are taking prices higher, the lack of conviction of US bond (10’s at 2.35%, 2’s back at 1.78% ) and forex traders is interesting. My sense is that will be remedied in 2018. But for now, the USD is on the back foot once again.

Japanese Yen

We had a warning of the overnight move in the price action of the Yen over the previous two days. As I highlighted yesterday, USDJPY was still in an uptrend but there was room for a pullback. We saw that overnight. Best respect the line while it’s here but overall USDJPY looks biased back toward 110.80/90.

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Kiwi

Likewise, the Kiwi has roared in the past few days. Fr​​om the low 68 cent region, NZDUSD has moved up to sit at 0.7019 this morning. 0.7077 is the 38.2% retracement of the recent fall and a reasonable target.

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