The Australian dollar is sitting at 0.7562 against the US dollar this morning and is also slightly higher versus the Kiwi and the Japanese Yen.
“The Aussie continues to find support in what has been a fairly narrow range against the US dollar over the past 3 weeks,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.
McKenna added that the weaker US dollar has empowered this rally in the Aussie. However, the domestic currency has not really capitalised on the US dollar’s weakness.
“The fact that the Aussie is still trapped in a narrow range (despite the US dollar’s weakness) suggests that international investors and traders continue to have residual concerns about the outlook for Australia,” McKenna said.
He mentioned that over the weekend, the Bank of International Settlements warned about the potential negative impacts of the growth in Australia’s high debt levels.
McKenna said: “To paraphrase the BIS, they essentially say we are borrowing growth from the future and at some point, we pay the paper with lower future growth.”
“That’s something that international investors are increasingly talking about when they highlight the risks to the Australian economic outlook. It’s one of the reasons why they see better opportunities elsewhere,” he added.
Earlier, McKenna said political risk had never been a topic of conversations in my many years travelling the globe talking to central banks, hedge funds, investors, and corporates. It is now.
At the margin that simply means if there are roughly equivalent investment alternatives, the one without political risk is favoured. Throw in concerns, like the ones articulated by the BIS, and the Aussie is already further down the menu, McKenna noted.
However, he pointed out that at the moment, it must be said that at present the risks highlighted are just risks.
“The RBA suggests and the NAB business survey plus employment highlight the Australian economy seems to be doing okay right now,”
“But the concerns are real and they remain a handbrake on the Aussie dollar right now – against the US dollar and on the crosses,” McKenna said.
Looking at the price action for Aussie dollar, the very short-term charts suggest the 0.7582/5 region is short-term resistance. Below that level the bias is back toward the bottom of this little 0.7535/85 range, McKenna said.
In Asia, the forex markets are opening relatively quietly this morning. The US dollar is continuing to disappoint the bulls as the data flow and relatively subdued bond rates keep the dollar’s rally capped below 97.80 in DXY terms.
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