Strong Q3 CPI could boost the Aussie dollar

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The Australian dollar rallied back into the 0.7640 region in the past 24 hours before being knocked back to sit roughly unchanged around 76 cents this morning.

“That suggests that traders are fairly comfortable playing either side of this 0.7450/0.7750 range for the moment,” said Greg McKenna, chief market strategist at FX and CFD provider AxiTrader.

“Naturally that could all change tomorrow with the release of the Australian Q3 CPI – but only if it is an incredibly weak number that undermines support for the Aussie,” McKenna added.

On the crosses, things are a little more interesting. GBPAUD looks like it is consolidating and could turn higher. AUDNZD is pushing a little higher again, and EURAUD looks like it may also be consolidating for a turn.

That, and the outlook for USDSGD and AUDSGD suggests the US dollar’s run may also need a hiatus.

aud-sgd-audsgd-dxy-25102016

Singapore dollar the developed world’s emerging market?

McKenna pointed out a key indicator he’s been watching on the US dollar’s strength recently. Based on his analysis, he said, “There is a relationship between the US dollar and Sing dollar, Aussie dollar and Sing dollar, and the US dollar index.”

“For me, the USDSGD rate is the developed market’s emerging market. It’s a good indicator of traders’ attitudes toward Asia as well as having its own economic and financial regulatory influences.”

Recently it has weakened as the Singaporean GDP disappointed but the Singaporean dollar moves nicely with the USD index, which in turn moves nicely with the AUDSGD rate.

This co-movement is understandable if you believe that the Sing Dollar and Aussie Sing should move with the US dollar index, McKenna noted.

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And he said, “I’m not convinced of the natural logic but I can see the directional correlation over a very long period.”

But even as I try to untwist the logic, the price action on USDSGD, the DXY, and AUDSGD in the past few days suggests that we could be in for a turn in the USD in the coming week.

Each of these suggests an interim top may be in place. The AUDSGD rate looks set to head back toward 1.04 from the current 1.0589.

But it also suggests that a benign to strong outcome for Australian Q3 CPI – 0.5% or higher could see the Aussie dollar lift as well.

About AxiTrader

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