Originally published by AxiTrader
The euro and Swiss franc both gained about 1% last light as the US dollar fell to the lowest level since Donald trump's election victory last November.
But at 0.7427 the Australian dollar is still lagging the overall US dollar move with last night's high of 0.7437 below the previous night's peak at 0.7445.
This inability to drive higher is despite the move in US dollar and the rally in base metals in recent days and speaks to residual concerns that global investors seem to hold on the outlook for the Chinese economy and its impact on Australia.
Indeed another big US investment bank has come out and said that the Aussie will fall to 70 cents for specifically this concern over the outlook for China.
And it's a concern that perhaps the RBA also holds if yesterday's board meeting minutes are anything to go by.
The minutes said Chinese economic growth "retained momentum in early 2017". But that comment came with a big caveat.
"Members noted that the outlook for the Chinese economy, particularly the residential property market, was an ongoing source of uncertainty for Australian exports and the terms of trade. Another source of uncertainty was how the Chinese authorities might balance achieving their growth targets with the risks associated with high and rising leverage in the Chinese economy," the minutes said.
And that is specifically the point that many investors and traders have been making in recent weeks. If Chineses authorities have locked down their capital account and are dealing with the rebalancing of the economy and making it less intensive on investment and repositioning toward services than demand for Australian exports might fall.
Indeed just this week we got further news authorities are cracking down on disclosure rules for the giant Wealth management Product (WMP) industry. That’s another sign China is serious about economic reform and cracking down on its shadow banking sector.
So it's easy to see why the Aussie is being sold on rallies and underperforming the Euro and other currencies push against the US dollar. Indeed when I wrote earlier this year that the Aussie could head above 78 and perhaps challenge the 80 cent level it was exactly this US dollar weakness that I had in mind to drive the Aussie to those levels.
That is clearly not the case now.
But that's probably a good thing for the Australian economy which can do with a helping hand of the relatively weak Aussie - against the US dollar and perhaps on the euro and other crosses - given the headwinds the Aussie faces from the consumer sector.
Which is why I'll be watching the release of the wage price index for the first quarter and Westpac's consumer sentiment index very closely when they are released this morning.
As I wrote earlier There is naturally a linkage between these two series and with wage growth slow of late and a focus on APRA, the RBA, and the government's attack on housing and the banks it will be interesting to look at sentiment and the sub-indexes underneath. Worth noting yesterday’s release of the ANZ consumer confidence collapsed to its lowest level since September 2015.
All that said the up move on the daily charts remains intact and the AUD/USD found support where it should have last night just below 0.7400.
As I wrote yesterday if the high of 0.7445 is taken out then a move to the 0.7485/0.7500 region could be in the offing.
Here's the chart:
Have a great day's trading.