The Australian dollar is lower this morning, sitting at 0.7583 on the back of a resurging US dollar.
“But it’s not really about the Aussie dollar at all. It’s about the moves in the US dollar, better US data, increased expectations of a December US Fed rate hike,” said Greg McKenna, chief market analyst at CFD and FX provider AxiTrader.
“And of course traders speculating that tonight’s non-farm payrolls in the US will confirm this changed view.”
According to McKenna the Aussie sat comfortably below 76 cents for most ofthe night. This suggests there will be supply above and approaching that level on the day with the outlook suggesting the chance of a drift toward 0.7540 support is high.
He pointed out that while the Aussie’s strong moves the past few weeks were about the Aussie itself, “the move back below 76 cents is all about the US dollar which is getting stronger on the back of better economic data from the US this week.”
“People have to remember that for every currency trade there is a pair involved. It is not just about the Aussie dollar. It is also the other side of the pair, in this case the US dollar,” McKenna said.
“So far this week we have seen improved conditions in the US manufacturing and services sectors and last night’s print of just 249,000 new jobless claims for the most recent week,”
“This has fuelled expectations of a strong non-farm payrolls tonight,” he added.
The average of market forecasts for September payrolls is 170,000 but the move higher in the US dollar and the rise in US 10-year treasuries to 1.74% suggests that traders are betting on a larger number, perhaps 200,000 or a strong upward revision to Augusts 126,000.
“That poses both an opportunity and a risk for the Australian dollar into the weekend,” McKenna said.
Opportunity, because if traders are over egging the data points this week into an unrealistic expectation of the strength of the US jobs market – which has been pretty erratic over the past 4 months – then the Aussie could rally back toward 0.7640/50 on a weak result.
The threat of course comes from the expectation of strength being delivered with a big number tonight.
It’s also a threat because so many markets are breaking out in a manner that suggests a change back to favouring the US dollar and US economic strength.
“So a strong number could knock the Aussie down to test recent daily trendline support around 0.7506 from the May low,” McKenna said.
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