The Australian dollar is sitting at 0.7684 this morning after running up to a high of 0.7712 on Friday on the back of better than expected Chinese PMI data.
“The bulls had a solid reason to test overhead resistance (on the Aussie),” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.
He added: “But, like many other currencies now, the Aussie dollar was unable to kick through that solid overhead resistance as traders backed off a little.”
“This week is a huge make or break week of data for the US dollar and recent price appreciations against it,” McKenna pointed out.
And it’s not just about US data. Australia has a huge raft of data to be released this week including building approvals, monthly inflation data and ANZ job ads today before the Reserve Bank of Australia (RBA) board decision tomorrow.
“No one really expects the RBA to change rates from the current setting of 1.5%. But there are plenty who now believe Governor Lowe will follow the hawkish tones from his offshore central bank counterparts recently,” McKenna said.
According to McKenna, Governor Lowe is likely to reiterate that the global economy is picking up, that China continues to do okay, and the prospects for trading partner growth seem reasonable.
“He’s also likely to highlight that employment has been okay recently. But it’s also clear that the governor still has concerns about financial stability, household debt, and consumption,” McKenna said.
He added that tomorrow’s retail sales figures for May is perhaps the key data point for the week.
“If consumers are the weak spot, or at least the potential weak spot, in the economy then this data is going to be important for the outlook,” McKenna said.
“Whatever he says and how he says it will impact the Aussie,” McKenna said.
Regarding the Aussie dollar’s price action, McKenna said no doubt that is because the US dollar remains weak and base metals and iron ore remain well supported.
“A weaker US dollar and the Chinese data Friday proved to be the double positive for the Aussie dollar,” McKenna said.
In other currencies, while there has been a lot of USD selling in past few trading days, speculators are still happy to bet on a USD/JPY rally.
According to McKenna, net JPY short positioning jumped from 50k to 61k contracts.
USD/JPY failed to rally significantly amid the broad Dollar weakness, but it managed to close the week above 112.
The reason is clear. While the Bank of Canada, European Central Bank and the Bank of England signalled that loose monetary policy might end soon – the Bank of Japan didn’t.
“The Yen is therefore likely to remain under pressure in the near-term,” McKenna said.
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