The Australian dollar has returned from being at the back of the pack to being one of the best performing currencies overnight.
“There is nothing like a lift in investor sentiment to pick the Aussie dollar out of whatever doldrums it may be in,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.
“We saw base metals started rallying yesterday and
stocks across Asia were doing better. The general shift in the previous two days’ mood toward a positive outlook pushed the Aussie back above 75 cents,” he added.
Overnight, the Aussie hit as high as .7546 and is now back trading around the .7525 level.
“From the back of the G10 pack to being one of the best performers over the past 24 hours. That’s still a pretty solid performance for the Aussie,” McKenna said.
However, he also pointed out the Aussie’s direction in the coming days will depend on the outcome of the French elections.
“Markets are also keeping an eye on the Trump tax plan,” McKenna said.
He added, “comments from US Treasury secretary Steve Mnuchin on the release of Trump tax cuts was an important intervention against bearishness in markets and the waning faith in Trumponomics.”
Earlier this week, Secretary Mnuchin said the tax cut plan will be released “very soon” and noted it will be “sweeping, it will be significant and it will create a lot of economic growth”.
“That’s exactly what traders the world over, looking for the stimulus of Trumpflation wanted to hear. But in many ways, I thought Mnuchin’s comments on health were even more important,” McKenna noted.
Last night Mnuchin was quoted as saying: “Whether health care gets done or health care doesn’t get done, we’re going to get tax reform done.”
According to McKenna, “It’s a signal that the Trump administration does not want to get bogged down.”
He also explained the importance of the US tax plan to Aussie dollar traders.
If traders want to be positive about same and take stocks higher if bonds get sold off on the news, and if there is a general sense of increased risk appetite then that is a net positive for the Aussie dollar, he noted.
Though any US tax cut can’t lift the Aussie dollar on its own. McKenna pointed out other factors that need to work together like growth, interest rate differentials, the US dollar and technical price movements for the Aussie to push higher.
“But at the moment, where it is now – around the .7470 – .7525 region, the Aussie is not exactly weak and holding its ground,” McKenna said.
Back in 2007, AxiTrader was founded on a simple idea: to be the broker we’d want to trade with. We’ve since grown to become one of Australia’s largest and leading Forex brokers. Investing in over-the-counter derivatives carries significant risks and is not suitable for all investors. You could lose substantially more than your initial investment.
This post has been seen 792 times.