Originally published by AxiTrader
Even with the prospect of a weak GDP print for Australia's first quarter when it is released this morning. And even with base metals weaker across the board in the past 24 hours. And, and even with gold and bonds rallying as traders appear to both take a little cover as the big macro events to end the week approach and as the reflation trade continues to fade the Australian dollar has continued to rally.
In fact, the rally has been so solid that the AUD/USD last night traded up to 0.7521/22 which is the highest level since the collapse back in early May which took it down to 0.7330.
Of course the RBA doubling down on its call that the Australian economy is going to head back toward potential and above 3% in the years ahead is certainly another bull point for the Aussie dollar.
But that assertion - confidently held it seems - appears to fly in the face of the many risks and headwinds facing the Australian economy. Not least of these headwinds is wages growth, large debt piles for Australian households, and and the impact these will have on consumption.
As I wrote earlier the governor seems to recognise these headwinds pose a risk to the outlook.
“Slow growth in real wages is restraining growth in household consumption,” the governor said in his statement yesterday. And, if I may, it’s worth repeating what last month’s minutes to the RBA board meeting said – “if households were becoming more focused on paying down debt, this would imply some downside risks to the outlook for household consumption growth. A fall in housing prices could also weigh on consumption growth.”
Danger Will Robinson! That's the real and present danger for the economy as housing looks like it might have peaked.
Anyway - today the market is now looking for a 0.2% print for Q1 GDP. The chance of a negative number appears to have grown. But I'd also add that in my experience even with all the partials GDP can still surprise - in either direction.
So we'll see at 11.30am AEST.
Looking at the charts now and the Aussie has some overhead resistance at 0.7520/30 which is both the recent high and the also the 200 day moving average. Many traders see this average as an indicator of a bull or bear market. So if the Aussie can push up, through, and hold above this moving average then the preconditions for a further rally grow.
Even the most casual observation of this chart shows we are at an important inflection point. Is the Aussie about to reverse and go lower. Or is it about to break out and charge toward 76 cents, maybe higher.
We'll know soon. And while there are still quite a few negatives for the Aussie dollar the weaker US dollar is the tide that is really lifting the Aussie dollar's boat right now.