Aussie $ holding strong despite risk aversion

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The Australian lost its grip above the 79 cents level, but still sitting around the .7870 cents region this morning.

“Though the Aussie is a bit lower and still under technical pressure, it has held in relatively well despite the big increase in risk aversion overnight,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.

“We saw global equities came under heavy selling pressure and safe havens like the Swiss franc, Japanese Yen, bonds and gold all coming into favour among investors,” he added.

Historically under these circumstances (risk aversion), the Aussie would have also come under selling pressure, McKenna pointed out.

“So far, the Aussie dollar has outperformed usual expectations and its commodity cousins the Kiwi and the Canadian dollar,”

“That’s not to say the Aussie is completely out of the woods. But it likely highlights that the Aussie dollar continues to have a host of fundamental drivers supporting it at the moment,” McKenna said.

In the meantime, traders and investors will be keen to watch what Reserve Bank of Australia (RBA) Governor Philip Lowe has to say when he appears at the House of Representatives Standing Committee on Economics today.

“Governor Lowe’s statements will be very important for forex traders today,”

“After seeing the effectiveness of Reserve Bank of New Zealand (RBNZ) Governor Wheeler’s jawboning action on the Kiwi dollar yesterday, it will be interesting if Governor Lowe will follow his colleagues over at the RBNZ and try and talk the Aussie lower,” McKenna said.

He added that the attractiveness of walking that route can’t be overestimated.

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“A subtle nudge in the current risk off environment from Governor Lowe could be all that is needed to drive the Aussie back toward the 0.7750/7800 region,” McKenna said.

According to McKenna, “If questions give Governor Lowe a chance to jawbone the Aussie lower, he would be mad not to take it.”

In the meantime, the US dollar is not benefitting from safe haven flows at the moment because it is one of the protagonists, McKenna said.

“Europe is not and is far enough away to stay out of the mess, Switzerland certainly is a real safe haven, and even though Japan is caught between the two belligerents the very nature of its national balance sheet means the Yen is acting as a safe haven,” he added.

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