The Aussie Dollar received a jolt of buying support as the US dollar reversed sharply in overnight trading.
“The Australian dollar is higher this morning because the US dollar suffered a sharp reversal last night. Part of that was the comments from US Treasury Secretary Mnuchin, who seemed to endorse the benefits of a weaker dollar for the US economy,” said Greg McKenna, chief market strategist at FX and CFD provider AxiTrader in Sydney.
“It’s something that the Reserve Bank of Australia (RBA) tacitly hopes for here in Australia when it warns of the impact of growth from a higher Australian dollar. It too sees benefits in weakness.”
According to McKenna, there are a number of solid reasons the Aussie Dollar is being supported at current levels, noting how impressive the Aussie has been supported on every pullback.
“The support for the Aussie Dollar was in evidence yesterday and it’s the backdrop against which the Aussie Dollar sits that is the source of its support. Of its strength,” commented McKenna.
Despite sellers pushing the currency down during the London session, it was the US Dollar’s weakness which allowed it to climb back into the mid 79 cent region.
Canadian data flow and commodities continue to show strength
McKenna noted strong global data in overnight, “Just look at that Canadian Q2 GDP data released last night. The market was expecting a 3.7% annualised result but the print was 4.5% annualised. That’s growth of more than 1% in the quarter the way the ABS would report it here in Australia.”
“Likewise, copper remains strong at $3.08 per pound, iron ore rallied again overnight, and yesterday’s release of the official Chinese manufacturing PMI was better than expected. So, the Aussie remains well supported fundamentally,” continued Greg.
On the technical front Greg noted a few key levels, “I was using a break of 0.7865 as confirmation the trend was over. So the low around 0.7870 keeps it intact for the moment.”
“That remains the bottom support before 7800 still. On the topside, the resistance is the high for the week around 0.7980/85 then 0.8040/60.”
US non-farm payroll data
With US non-farm payroll data out, Greg noted “My sense is that the market is guessing at another big beat. So the risk might be more skewed than recognised for the US Dollar. Either way though, the technical levels for the Aussie Dollar are going to be key over the next few trading sessions.”
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