The Australian dollar was higher, but only marginally against a recovering US dollar overnight.
“But the Aussie has had a stellar night against the Kiwi, rising to its highest rate in over a month,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.
The AUD/NZD pair is now trading at 1.0460, which is getting close to a retest of important trendline support, according to McKenna.
“A break at this level would confirm that the parity party balloons have to be put back in the cupboard, and the punch bowl emptied once again,” he said.
According to McKenna, the Aussie dollar has done a lot better in 2016 than many expected.
“One of the reasons for that is the US Fed’s continuing delay of its tightening cycle. Plus we have a surprisingly strong economic growth rate above 3% supporting the Aussie dollar,”
However, he pointed out that while the Aussie dollar has been strong against other major currencies, it has been in a broad decline against the Kiwi (dollar) since getting back above 1.1250 in April.
“A large part of that has been the RBA’s rate cutting policy. Also the fact that NZ dollar has many of the standout features that attract buyers to the Aussie.”
In the past 24 hours the Reserve Bank of New Zealand had said they are likely to drop rates again.
McKenna said, “We’ve heard that they believe the NZD needs to be lower. And we’ve heard from many pundits who believe the RBNZ will act on its implied promise of easing.”
Given the most recent moves from the Bank of Japan and the US Fed and the growth outlook that supports the Aussie dollar, we have AUDNZD higher this morning.
“It’s looking a little toppy in the short term, but the weekly charts are now suggesting a turn like the one that drove AUDNZD to test the current downtrend line back in July,” McKenna said.
The AUDNZD needs to break 1.0550 conclusively if the worm has finally turned, he added.
US dollar vs Yen and Euro
As the US dollar tries to recover from its weakness in the past 24 hours (against the EUR and the Yen) traders are trying to digest the relative merits of each nation’s economy, interest rate, and asset market outlook and what that means for currencies.
According to McKenna, “Even though there are plenty of calls for USDJPY to fall, and the US dollar to lose ground against the Euro the question traders are asking themselves is why?”
“This is because the US economy is stronger, its rates are higher, and it’s holding support reasonably well at the moment. It’s a potentially different story for EM currencies,” he said.
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