Originally published by AxiTrader
The Australian dollar is at a four-day low as it slipped below support at 0.7890 overnight as buyer emerged to bid the US dollar after Friday's key reversal on the DXY.
That's a mouthful, but it neatly encapsulates exactly what has happened to the Australian dollar - now trading at 0.7875 - in the wake of this US dollar recovery.
Yesterday the Aussie held firm around 0.7890 as buyers - said to be corporates by the Twitterarti - chased the price off its lows and back above 79 cents. But as the selling in the Dow Jones Industrial Average has again accelerated in the New York afternoon and with US bond rates stable the US dollar has regained further strength knocking the Aussie and other risk currencies like the kiwi, Canadian dollar, Mexico peso, Brazilian real, and South African rand lower.
Clearly at 89.71 in US Dollar Index terms the US dollar has had a solid bounce off last week's 88.11 low. But it is still some way from the 91 level, again in DXY terms, that is necessary to be more confident that a sustainable low is in place and thus that the Aussie is heading substantially lower.
Until then though the Aussie will remain pressured as the bulls and bears battle out the outlook for the US dollar. It will also be pressured if the failure at multiple stock markets - including the S&P 500 - at significant Fibonacci resistance turns prices substantially lower once more.
There is a big risk of that.
In the meantime today we get the release of the Wage Price Index for Q4 2017. The market is expecting a 0.5% print for the quarter and 2% print for the year on year number.
In the current environment, there is a potential significant asymmetry for the Aussie because the reserve bank has so many times recently spoken about the need for wages in Australia to rise. That's a precondition for an improvement in household consumption but likely also a prerequisite for a start to the RBA's tightening cycle.
So, with the US dollar on the march, a miss to the downside in the WPI is likely to garner heavier selling, than a stronger than expected print would stimulate buying.
Looking at the charts then I can see a big chance of a move back to 0.7765/75 where the 100 and 200 day moving averages lie. Rallies are likely to be capped around 0.7950.
Have a great day's trading.