Aussie dollar under pressure as ECB signals possible taper program

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The Australian dollar traded up to a high of 0.7691 yesterday but again found resistance at the 77 cent level.

“The 77 cents mark has been a tough hurdle for the Aussie and traders are finding it a persistent rejection level for some time now,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.

Overnight however, the Aussie came under pressure as the US dollar strengthened, bond rates rose, stocks fell, and gold collapsed after news broke that the European Central Bank (ECB) was considering a taper program to reduce its monthly bond purchases as it closes in on the scheduled end to quantitative easing.

This morning the Aussie dollar is back at 0.7611 near the support zone of 0.7580/0.7600 where it bounced off last week.

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“Whether it can hold is in no small part depends on what retail sales tell us about the state of the Australian economy at the moment,” McKenna said.

According to McKenna the news that the ECB has almost reached consensus on a taper for its bond buying program is another sign that the landscape of global central banking is shifting.

“This is an important signal that paradigm of ever decreasing long bond rates being bid lower by central bank demand is nearing its end,” he said.

He added that potentially it will be a very important move for the Aussie dollar which has been a significant beneficiary of the pick-up enjoyed by investors buying Australian government and other bonds as a yield play.

“Like gold, if Australia has been a safe harbour in that world of negative rates, then as demand for the Aussie wanes so the upward momentum we have seen this year in the Aussie dollar will slow,” McKenna said.

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“That doesn’t mean the Aussie will fall. It simply means that any further advances are likely to be build, or need to be built, on the underlying attraction of Australian assets and strength of the Australian economy,” he added.

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