Aussie dollar’s rally failed

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The Aussie dollar is setting up to try to break higher. But last’s night’s rally into the mid 0.7640’s failed after the US dollar found its footing and started to rally after a day and a half of pressure.​​

That the Aussie’s reversal happened at the same time the US dollar started to gain traction and as the Canadian dollar also came under heavy attack suggests this was both a combination of US dollar strength as it was a weakness in energy and metals prices.

Indeed, the loose price and directional correlation I watch on 10 minute and hourly AUDUSD chart moves with copper price moves suggests that very fact.

This combination of drivers sets up an intriguing day ahead for the local market.

Besides the ANZ weekly consumer confidence data, there is little on the local calendar to worry traders. But that doesn’t mean nothing is going on. Indeed, we have a speech from Minneapolis Fed president Neel Kashkari and also a speech from NY Fed boss Bill Dudley.

​​US Fed

After Dallas Fed’s Robert Kaplan sounded quite hawkish about the labour market and the Fed getting behind the curve this morning, it will be interesting to see what these two influential Fed members say. Kashkari is a bit of a dove while Dudley strikes me – like Yellen – to be a dove, a hawk, or a hawk-dove as the economy requires. What either or both say about the outlook for inflation in the wake of last week’s Yellen interview and FOMC minutes will be important for the AUDUSD and the US dollar more broadly.

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Equally important today will be the moves on Chinese markets. After a day of stock weakness which hit investor sentiment across the globe and dented the metals and ore rallies, traders will be watching to see where Chinese – and Asia’s – markets head today.

A risk-off event would not be good for the Aussie while a more positive day could help it head back toward last night’s highs.

In the wider forex market, the USD is mildly stronger but it has been a very mixed night. The Euro’s surge didn’t exactly run into a wall but it certainly lacked follow through even though there was more news that the pressure is building on the SPD to form a “grand coalition” in Germany. EURUSD has an ugly pin bar suggestive of the high chance of a further retracement.

​​Japanese Yen

USDJPY reversed course in the past 24 hours to just pip the Kiwi as the best performer of the major traded currencies. I confess to being surprised that the Yen has benefitted more from the non-too-subtle hints from the Bank of Japan (BOJ) that it is almost time to change its approach to monetary policy. I guess some would say at 111 the Yen already has. But for me, I’m targeting something in the 108/109 region as a start. BoJ’s Nakaso speech tomorrow night will be interesting.

​​Canadian dollar and Kiwi

For the commodity bloc, it was an interesting night. The CAD lost ground as well and its up 0.4% this morning at 1.2760. That’s an interesting move given it had been doing well as US markets opened. I know a few players as “buy USDCAD” as their trade of the week. PPI data tonight could be important. The Kiwi has done best. After breaking higher last week, it retested that break for two days and has now kicked on. It looks like traders are buying into the increased chance of a run higher to 70 cents possibly the 38.2% retracement level at 0.7077.

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