The Australian dollar has just regained the 75 cents level against the US dollar this morning after what has been a tough couple of weeks for the bulls.
“The Aussie dollar is in a tenuous position at the moment,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.
He pointed out the growing notion in the markets of the state of Australia’s domestic economy and the fact that the Reserve Bank of Australia (RBA) is the only major central bank which could cut rates this year.
“And this thinking leaves the Aussie dollar tenuously poised and at risk of an utter capitulation,” McKenna said.
He added that the Aussie dollar’s drop this morning threatens to unleash a wave of selling capitulation from a long speculative market.
However, he pointed out that there is no need for the market to turn uber-bearish on the Aussie.
The Aussie dollar is still enjoying some support from long speculative positions according to the latest Commodity Futures Trading Commission (CFTC) report.
But according to McKenna, there are signs that the landscape could be changing for the Aussie dollar.
“I was a bull earlier this year. I saw a reflation trade and the long-term weekly technical outlook providing an impetus for a move through the recent highs above 77 cents, a challenge of the 2016 high of 0.7840 and then a high chance of a run at 80 cents,”
“But as a trader what might be my rhetorical view is open to changes in the fundamentals, and especially the way the Aussie trades – the price action. And that has given a clear signal prices above 77 cents remain a graveyard for the bulls,” he added.
From McKenna’s view, all the factors – growth, interest rate differentials, US dollar, technical and risk appetite – that have been supportive of the Aussie dollar have turned.
He said the data that fed the reflation trade has faded. The technicals have turned. Interest rate differentials are moving in favour of the United States, risk appetite has shifted back a little as faith in the reflation trade and president Trump’s tax and infrastructure effectiveness have waned, and the US dollar has turned higher again.
“So the Aussie remains under pressure,” he added.
Some domestic data out this week – the NAB Business Survey and Westpac-MI consumer sentiment data may give the markets and investors a better handle on where the Australian economy sits.
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