The Australian dollar has weakened in overnight trade thanks to a stronger US dollar, but the key drivers are still looking good.
“The Aussie dollar is lower but doing quite well on the crosses this morning even though it is under a little pressure,” said Greg McKenna, chief market strategist at FX and CFD provider AxiTrader in Sydney.
McKenna continued, “That the Aussie has done relatively well both against the US dollar, and on the crosses, is confirmation that the usual drivers of its strength or weakness continue to be the key determinants of value.”
Commodity prices & the local economy are supporting the Aussie Dollar
“Metals are strong – even after last night’s reversal in iron ore and copper coming off the top. The Australian economy remains strong. The global economy remains strong,”
“And investor risk appetite picked up last night with a solid rally in stocks and a little selling in safe haven assets like gold, the Yen and Swiss franc,” added McKenna.
Mckenna also noted, “Of the key primary drivers, only the US dollar, and the break of a 4-hourly trend line were negative for the Aussie Dollar.”
“The MSCI metals share index continued to outperform the overall global MSCI share index which further supports the Aussie dollar.”
The Aussie dollar’s battles going forward
McKenna noted a few key areas to watch going forward, “With iron ore futures reversing in Shanghai last night, and copper dipping from its new recent high, we’ll see how the Aussie Dollar fares in trade today.”
“The battle at the moment is within the recent ranges and the outlook for the US dollar. How things play out is going to need economic data – both here in Australia and globally – and central bank guidance,” he noted.
At the same time McKenna also noted the big one to watch in terms of the Trump tax plan, “Of course, a Trump/Republican tax plan actually getting up will be very bullish for the US dollar.”
On the technical side, he noted, “Medium term, the dailies show a 0.7800/0.8060 range might be in the process of being established. Shorter term – looking at the 4-hour charts 0.7885/90 looks like important support now that the little uptrend from the 78 cent low last week has broken in the past day.”
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