The Australian dollar has hardly moved and still trading around the .7622 range.
“The Aussie seems to be trapped in a narrow range,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.
He added, “But that tight range belies a level of disquiet about the Aussie’s price moves. It is also interesting to note that the Aussie has been an underperformer against its bigger rivals like the Euro, Yen, and Sterling.”
According to McKenna, the Aussie has also underperformed the Mexican peso and Korean won both of which have also gained more than 0.6% against the US dollar this week.
“It’s not terminal of course, but the Aussie’s relative performance suggests that as one of the primary beneficiaries (in the forex markets) of the market’s embrace of Trumponomics, it could be suffering from the rotation going on in the markets right now,” McKenna said.
He explained that up until 2 weeks ago, the Australian dollar had been the best performer out of a basket of about 20 currencies.
But since failing to hold above 77 cents again last week currencies like the yen have caught up while the Korean won and Mexican peso have swiftly eclipsed the Aussie dollar’s performance.
McKenna said there are two possible factors behind the Aussie’s relative weakness.
“The first is that president Trump has proved himself, so far, less effective a president than many thought he would be,”
“That meant the move in markets since the US presidential election has unwound to a certain extent,” McKenna said.
Stocks have drifted lower, bond rates have rallied and the US dollar has been losing ground broadly. Those losses (in the US dollar) have been magnified against the Emerging Market currencies that were hammered in the wake of Trump’s victory.
The second factor according to McKenna, is that there has been a growing recognition that even with the global economy showing real signs of economic life and reflation, perhaps the bounce in commodity prices – especially Australia’s export basket – might have fully factored all the good news. And then some.
“Even the Reserve Bank of Australia has been warning about the outlook for commodity prices. And all these play a role in the Aussie’s underperformance,” he said.
McKenna reiterated that as iron ore and other – non-US dollar – drivers of the Australian dollar continue to undermine it, the Aussie will remain pressured.
He pointed out that “When you look at the moves in the Korean Won and Mexican peso, in gold, and bonds, the selling in US financial stocks, the dip in commodity prices, and the uptick in the VIX, what we are seeing is a cross-market unwind of the core pillars of the Trumponomcs rally,”
“So far it’s just been taking some money off the table. But it threatens the broader market and that in turn threatens the Aussie dollar,” McKenna said.
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