Aussie dollar tries at .77 cents but fails; NZD recovers

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The Australian dollar made a high around 0.7695 overnight as traders tried again to take it back up through this level and toward the previous range bottom at 0.7730.

That it failed again even as copper, nickel, and iron ore surged suggests that traders and investors still see the downside as the most likely route for the Aussie dollar at the moment.

So the Aussie dollar is sitting this morning at 0.7679 up around a quarter of a percent day on day.

It just got a little lift as I’m writing after a Wall Street Journal article says president Trump is going to pick Jerome Powell as successor to Janet Yellen as Fed chair. Why that should hurt the US dollar when he is unlikely to deviate sharply from the path established by Janet Yellen and the FOMC on which he currently sits is difficult to understand. But I guess the markets are essentially saying “at least he’s not John Taylor” who is seen as far more hawkish.

But back to the Aussie dollar now and the current price action is very similar to that of the Euro. That is, we have a market that’s stopped falling but can’t really rise. The question then becomes what does that tell us? Does it tell us anything at all?

My sense is that after falling around 275 points in the space of six days to last Friday’s low traders have materially recalibrated their expectations and outlook for the Aussie dollar and are now waiting for more information in the form of data and US dollar moves in this very important data period at the start of the month.

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Yesterday’s miss on the AiGroup manufacturing PMI didn’t help much but the improvement in iron ore and copper did. So, this morning we have and AUDUSD which is essentially in a 0.7625-0.7700 (perhaps 0.7730) range with a break either side necessary to signal the next big move.

Today’s trade and building approvals data is going to be very important in the immediate term if they miss materially from market expectations. On that front forecasts are for a fall of 1% in September building approvals and for a trade surplus of $1.2 billion during the month.

​​Bitcoin continues rally

Bitcoin has had another rally as traders clearly bet the news that the CME will join the CBoE in offering product will bring more traders, and thus money, into the scarce resource that is Bitcoins. Given the laws of supply and demand that will, if it eventuates, put a certain level of upward pressure on Bitcoin prices. So this morning BTC is up 3.25% at $6,570.

US dollar gains vs Euro

In other forex market developments, the US dollar has caught a bit of a bid over the past 24 hours. Only a small one, I don’t want to over-egg it. But a bid nonetheless. As has become the norm lately however that bid is not universal with individual currency pairs becoming subject to their own drivers. So, this morning the USD Index (DXY) is up 0.23% to 94.76 and the Euro is down a similar amount back at 1.1621 after spending the past few days testing the underside of the breakdown level without any success in pushing up and back into the old range. These haven’t been big moves. But if the Fed has underlined anything, and if the EU inflation data a night ago did likewise, it is that the respective central banks are on different monetary tracks.

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As part of the USD’s move higher the Yen is on the back foot a little with USDJPY back up at 114.10. It’s been a wild ride this week with a low around 112.95 before the last 2-day surge. Again, that’s what central bank divergence can do. Sterling had a cracker overnight and then reversed. It made a high of 1.3320 after the UK PMI was one of the few that actually beat expectations last night. But it reversed quickly from these levels with much chat about just what Mark Carney and his colleagues will do. The price action suggests traders are thinking we’ll see a dovish hike. I still think the BoE could comfortably pass. We’ll know tonight.

​​Kiwi dollar recovers

On the commodity bloc, it was the Kiwi that was the big mover – NZDUSD is up 0.56% at 0.6882 after the much stronger than expected employment data yesterday morning. Both the unemployment rate and employment growth were better than even the most optimistic forecast in the Reuters survey. So it’s no wonder the Kiwi roared. But it’s well off the 0.6930 high overnight. It does look like the Kiwi is trying to build a base above 68 cents, which needs to hold.

The Canadian dollar is actually a tiny bit better bid this morning at 1.2865 even though oil is lower. To be fair oil’s influence on the CAD has waned recently as moves have been dominated by the US dollar’s direction and what has been an appalling run of data misses in Canada. For example, at the start of September, the Canadian Citibank economic surprise index was sitting around 100. Today it is at -33.1. No wonder the BoC has backed off, taking the Canadian dollar with it.

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