Originally published by AxiTrader
The Australian dollar sits at 0.7552 this morning. That's down a little more than 30 points from where it was around this time yesterday.
That the Aussie under-performed so spectacularly when the pound surged and the euro, yen, and Swiss franc all gained is a warning that even if the US dollar is under pressure the other key drivers of the AUD/USD exchange rate are not supportive of gains in the current environment.
Prominent among the drivers which restrained the Australian dollar is the continued collapse in base metals and iron ore.
While the AUD/USD - whose rally stalled above 77 cents on numerous occasions this year - didn't fully participate in the upside for iron ore it is certainly the case at the moment that the turn in iron ore is a weight on the Aussie in traders minds.
But clearly given the Aussie didn't fully participate in iron ore's upside neither should the collapse on its own drive the Aussie too low.
Rather what is also constraining the Aussie is the fall in stocks, rise in gold, the yen, weaker EM currencies, and fall in interest rates at the moment as investor risk appetite takes a little bit of a hit. As an off index bet the Aussie hardly ever does well in times of heightened market tension.
And that's what we have right now with the announcement of a British general election for June 8 adding an additional layer of uncertainty for traders who have the French election coming fast at them, continued posturing on the Korean peninsula and a new flash point in Turkey to worry about.
It all sounds dire doesn't it.
So it is worth noting that the Aussie was hammered against the pound, and lost ground against the euro, yen, Swiss and even the kiwi. Certainly it is down a little against the US dollar, but it has its own problems.
So even though the AUD/USD is sitting at 0.7553 just 30 or so points lower than around this time yesterday its performance has been a lot weaker in trade weighted terms.
That's actually good for the economy.
Which is likely necessary after the RBA minutes yesterday confirmed my initial thoughts that the RBA is worried about labour market softening, low inflation, moderate growth, and is struggling hard to restrain housing.
But the very last sentence in the minutes which said “The Board judged that developments in the labour and housing markets warranted careful monitoring over coming months” suggests that if housing can be restrained the RBA has a much more dovish tone than even I thought.
Naturally last week’s employment data will be an important salve to their concerns. But we’ll have to see what the next – March – jobs data says. Will it confirm the February bounce.
That's important because as the world's big central banks think about how they will exit the emergency measure instituted after the GFC the RBA might yet go the other way.
That was the catalyst for the initial break of the 0.7575/80 region I highlighted as important in yesterday's note. But looking at the chart today the Aussie is betwixt and between.
A break of last night's low at 0.7533 would be telling and a move back above 0.7580, let alone Monday's high of 0.7610 would be needed to change the outlook.
Here's the daily chart. Overall though my sense is lower levels beckon in the current environment.
Have a great day's trading.