The Australian dollar had a fairly tight range over the past 24 hours but it has continued to drift lower after the weaker than expected Caixin Chinese PMI and another sell-off in iron ore soured sentiment to start the week.
At 0.7752 this morning the Aussie dollar is looking precariously placed if the NAB business survey doesn’t put a more positive tone on the economic outlook for Australia than the one that seems to have seeped into traders’ psyche as fears about housing, debt, and consumption all congealed into a negative narrative after last week’s surprise 0.6% fall in August retail sales.
As I wrote earlier, a weak NAB business survey would really hurt the Aussie today in a manner that a continuation of the solid results we’ve seen from conditions, trading, profitability, and employment over recent months. Traders will be watching last month’s fall in confidence to see how that flows and what it suggests about the outlook. I’ll personally be looking to see if NAB chief economist Alan Oster finds anything in the data to either reaffirm or change, his call for rate rises in 2018.
Today’s release offers an asymmetric risk to the AUDUSD with a positive outcome likely to find overhead selling and a weak outcome opening the trapdoor toward 77 cents, probably lower.
To recap the previous levels for conditions and confidence were 15 and 5 respectively. Traders often fix on confidence rather than conditions, however. So that is the number to watch.
Looking at the charts and as I suggested yesterday the weekly chart suggests we may see a full round trip to the start of this rally below 74 cents.
On the dailies likewise, the Aussie is starting to fall into the “don’t catch a falling knife” category. resistance is 0.7800 and then 0.7830/35 will support is less obvious right now before the 200 day moving average at 0.7665/70 and of course my stretch target of 0.7650/60.
In other forex developments, the forex markets were in aggregate reasonably quiet last night. But that aggregate which left the USD in index terms largely unchanged at 93.71 or the Euro up a little at 1.1739 belied a few individual moves and a period of weakness in the dollar after the German data and ECB comments before it made back most of that ground.
Indeed, we ended up with a few specific moves in the main G10 forex markets I watch. GBPUSD was the highlight. The huge revision higher in UK labour unit costs by the ONS overnight from 1.6% year-on-year to 2.4% has put more pressure on the Bank of England to hike rates which helped Sterling even as the UK government says the Brexit Ball is in the EU’s court. GBPUSD would have to rally up through 1.32 to turn the tide though at the moment.
USDJPY is still looking very toppy. Last night’s low of 112.32 was around the low last week so if this 112.25/30 region gives way we may see a break lower.
The Kiwi remains unfashionable and I retain an outlook which looks for a full round turn and retracement back to the start of the rally around 0.6970.
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