Australian dollar Under Pressure Despite Rising Risk Appetite

Originally published by AxiTrader

Key Takeaway

Nope, not a chance, never.

Once again the 77 cent region, and proximity to it, was too much for the Aussie dollar bulls who retreated as the US dollar advanced across almost the entire board in the past 24 hours. The AUDUSD high of 0.7687 in early Asian trade yesterday morning was less than 10 points below the high of the past couple of week's and the Aussie finds itself down at 0.7642 this morning.

So while the Aussie remains well supported above 76 cents recently the price action of the past 24 hours again reinforces the wall at 0.7700/20. So we are stuck.

So we are stuck, waiting for the next shoe to drop.

What You Need to Know

As I highlighted yesterday if you put a multifactor model of the drivers of the AUD/USD together there is every chance you'd end up with a value above 77 cents. But so far the Aussie is not benefitting from the positive lift in risk appetite, not the surge in commodities we've seen in the past few days.

Perhaps it could be argued that the rally from below 72 cents to the recent high just below 77 cents, a move of almost 7%, has already factored this shift back toward positivity about Trumponomics and reflation. I think that would be a highly credible argument.

Which really means that there needs to be another material surprise for, or against as it may be, the Australian, Chinese, or global economy to kick the AUD/USD out of what I see as a 0.7580/0.7600 - 0.7700/7720 range.

It's unlikely to be the NAB business survey today because even though I believe it's the single best economic indicator in Australia each month we'd need to see a big shift in business conditions or confidence to catch Aussie dollar traders interest.

But as you can see in the chart below Business conditions are strong when compared to history.

Chart

I would be very excited if we see a print above 12. It would really support the RBA's thesis that the Australian economy is rebuilding economic momentum. That would certainly get folks attention as it would signal business conditions are moving into a post-GFC high.

Chinese inflation data is important for the Aussie as well.

It's no coincidence that the recovery in the PPI from deeply negative deflation and the CPI from low levels over the course of 2016 was coincident with the improvement in global economic data and growth, as well as reflation.

Indeed Blackrock (NYSE:BLK), the world's biggest fund manager, said in a note that China is the key to global reflation. I couldn't agree more. It's exactly why I started talking about reflation last year when I noticed the turn in Chinese inflation data.

Crucially Blackrock added, "the momentum of this upswing (their China GPS economic indicator) showing no signs of fading yet. We expect a steady expansion ahead in China, with room for upside surprises."

So we watch and wait for the data today.

Market expectations according to Reuters is for PPI to climb to 6.3% from 5.5% last in year on year terms. Consumer prices are expected to rise to 2.4% year on year from 2.1% last.

But the big question for the chartists - and me I guess - is what's next for the AUD/USD.

I have shrunk the chart down to the 4-hour timeframe to show how prices are caught in this box, and have been for some time. A break of 0.7580/7600 or 0.7700/20 would be the catalyst for a big move. But in the mean time it seems traders are happy to play the range right now.

Chart

Have a great day's trading.