The Australian dollar continues to meet resistance above the 77 cents range.
“The Aussie dollar is trapped with the bulls continuing to buy on dips but the bears selling above 77 cents level,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.
He added, “It’s a classic example of the market being at a bit of a standstill because all the current good news is priced in while the bears expect the bad news to start flowing soon.”
According to McKenna, how the battle plays out depends on the US Fed and its statement this week.
“And of course all eyes and ears are on president Trump’s address to the joint sitting of Congress Tuesday US time,” McKenna said.
Last night the Aussie traded a fairly muted 50-point range again but resistance and supply above 77 cents held firm.
McKenna said the range trading makes sense when you take into account that many of the positives for the Aussie dollar are already baked into the cake.
He added that most forecasters still see an environment where the US Fed is raising rates as supportive for the US dollar.
“So, naturally as the other side of the Aussie dollar exchange rate, that’s an important thing to factor into any outlook,” McKenna said.
On the other hand, he pointed out that speculators have increased their bets on the Aussie rising and have net longs at the highest level since November last year.
“From a fundamental standpoint, I think there is a strong risk that by the end of this week the market is refocussed on the March FOMC meeting and the fact that it is actually live,” McKenna said.
If the US Fed increases rates, McKenna said: “That could definitely weigh on the Aussie dollar.”
Today’s quarterly balance of payments data and tomorrow’s GDP print are important for the Aussie.
“But in the current environment where the market still see policy divergence as a key driver of exchange rates unless the Fed changes tack, the bears are likely to remain sellers above 77 cents,” McKenna said.
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