The Australian dollar is trading around the .7533 level this morning despite all other markets rallying overnight.
“What we’re seeing is that most of the markets are rallying and their moves are screaming that risk is on,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.
“These moves (US indices up, copper rallying, iron ore prices recovering) are usually associated with a rallying Aussie dollar, but for some reason, the Aussie is still underperforming,” he added.
From McKenna’s point of view, the Aussie dollar is “lagging badly and lacking catalyst, but today’s inflation data may change that.”
At 0.7533 this morning the Aussie is down 35 points from where it was around this time Monday and close to 60 points off the early morning high that day at 0.7591.
“It’s an utterly awful underperformance which is likely to be confounding the bulls,” he said.
But it’s also an underperformance which fits with a confusing technical outlook and the underperformance this week by the New Zealand and Canadian dollars, as well as the Mexican peso, McKenna noted.
According to McKenna, the fact that the Trump administration is putting tariffs on Canadian lumber and then attacking its dairy industry has hurt the Canadian dollar (CAD) with some potential knock-on effects for the Kiwi, which fell close to 1% overnight to 0.6946 and helped drive the AUDNZD back above 1.08.
“So maybe another way of looking at it and why the Aussie is underperforming the big lift in risk appetite is really just that traders have bigger fish to fry at the moment,” McKenna said.
That means that the release of the Q1 inflation data today might pose an asymmetric risk to the Aussie dollar and on the crosses.
If the CPI undershoots market expectations that a 0.6% qoq headline print will drive the year on year rate to 2.2% – back inside the RBA’s 2-3% range.
The less volatile trimmed mean is expected to print 0.5% and 1.8%.
“This data is important for the outlook for rates and the dollar because it will inform thinking about the RBA and possible policy responses in an economy that feels like it is at risk from a domestic slowing later this year or in 2018.
“Just as a weak number will hurt the Aussie, a stronger than expected result will help. Probably just not as much as a weak outcome would hurt,” McKenna said.
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