The Aussie dollar as strong as an Ox despite RBA warning

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The Aussie dollar has pushed to the top of the range, sitting at 80 cents, despite the RBA governor’s outlook for wages and inflation.

Lowe suggested the laws of supply and demand still work and that the demand for labour is strong and wages are increasing more quickly than they have for some time.

“If RBA Governor Lowe is right, then the laws of supply and demand will also be working in forex markets as Aussie dollar traders buy more AUD as the expected increase in inflation adds to an already positive backdrop for domestic and global growth,” said Greg McKenna, chief market strategist at FX and CFD provider AxiTrader in Sydney.

“That’s great news for the economy if the governor is right. The thinking will flow that despite governor Lowe’s clear message that rates are on hold for an extended period the time to end record low RBA interest rates is coming nearer.”

But Lowe did caution about a rising local exchange rate being unhelpful for growth going forward.
McKenna added, “But that’s against a backdrop of the RBA expecting Australian growth to get back to potential and market expectations that today’s Q2 GDP print will come in around 0.9%/1.0% for the quarter.”

“So it is no wonder that the AUDUSD is sitting back up near 80 cents at 0.7995 this morning. Were it not for the uptick in tension on the Korean peninsula and associated mild risk aversion, traders would be focussed on a move toward the highs for this year around 0.8050/60 or probably higher.”

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Traders must remain flexible given North Korean tensions and today’s GDP release at 11:30am.
“Of course, there are still risks from North Korea and I’m not convinced the US won’t be goaded into a military response. Equally the ebullience and expectations around a strong GDP release at 11.30am AEST today pose some risk that the move has already been priced,” cautioned Greg.

From a technical point of view, there are a number of positives to consider with the Aussie dollar at current levels.

“Looking at the 4-hour charts the Aussie is clearly in a mild uptrend with topside resistance at 0.8037 while the bottom of the channel comes in around 0.7890/95 at present. Short-term support is at 0.7965/70 and 0.7945/50,” added McKenna.

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