The Australian dollar is trading at .7648 level as traders remain cautious ahead of the Reserve Bank of Australia (RBA) decision this afternoon.
“Aussie dollar traders are still wary of taking on the 77 cents level in the absence of a weaker US dollar,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.
He added: “The Aussie is lower with 77 cents again proving a level that turns traders into “fraidy cats”.
According to McKenna, while most economists don’t expect any rate cut from the RBA today, some believe that rates will be lower at some point this year.
“To me, that highlights that there are still risks around the outlook for the Australian economy. And that is something that traders and investors will be watching closely for hints of the RBA’s view this afternoon,” McKenna said.
He said any hint of worries about the outlook, the level of the Aussie dollar near 77 cents, or issues with the global economy could hurt the Aussie dollar in the short term.
“On the flip side, ebullience about the domestic economy might push the Aussie higher. But it likely needs a weaker US dollar to breach and hold above 77 cents at the moment,” he said.
According to McKenna, “Traders seem to be a little afraid of buying near this 77 cents level. It certainly seems that way at the moment. Yet while the Aussie was undervalued at 77 cents it appears more fairly valued now.”
That means the overall moves of the US dollar and today’s RBA announcement are the keys to the near-term outlook for the Aussie dollar.
But the door to another easing remains ajar because the Australian economy appears spotty at the moment. Yesterday’s data is a case in point. The monthly inflation gauge rose 0.6% in January, but retail sales data released for December unexpectedly fell 0.1%.
“But while the door is ajar to another cut, it seems the RBA is reluctant to lower rates in Australia because investor lending is rising sharply again and that could cause problems for the housing market,” McKenna noted.
But if consumption is slowing even with strong house appreciation there could be a little more underlying weakness in the economy than markets recognise.
Looking at the charts, McKenna said there is a risk that if the 77 cents level isn’t taken out soon, traders start to focus on the steepness of this uptrend and the potential for a break.
“My read at present is that buyers still have control and dips in the Aussie dollar are finding support,” he said.
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