Originally published by AxiTrader
The Australian dollar, along with its commodity bloc cousins the Canadian dollar and kiwi were among the best performers of the forex majors on the first trading day of the week as the bulls remain unprepared to give ground regardless of what the RBA might say.
To a certain extent I get that.
Traders haven't really listened to Mario Draghi when he's tried to be dovish recently, across the Tasman RBNZ governor Wheeler has suffered the same fate, so why should Australian dollar bulls suddenly be worried about what the RBA says about rates when the RBA itself is probably the most bullish forecaster on Australian growth in the market.
That's both right now and over the past six months.
While many of us worried about consumers, their debt, employment, and the chance that we could see a focus on debt reduction the RBA has, and had, forecasts in the market which say Australia's growth rate will head back into the 2.75% to 3.75% range for this financial year and next.
By their own definition that means that the economy will be growing at it's potential.
The good news there is that this should continue to reduce unemployment and underemployment, and should - in time - also help see wages and inflation increase.
These are key hurdles the NAB argued this week are necessary before the RBA will begin its tightening cycle - you can read more here in my morning markets wrap. But again you can see the point of the bulls, can't you?
If the RBA is right on the outlook for the economy then it is inevitable that rates will rise in Australia regardless of the entreaties of deputy governor Debelle last Friday or likely entreaties from RBA governor Lowe in his speech tomorrow.
That doesn't mean my discussion yesterday of the merits of the AUD/USD up here above 79 cents has changed.
Indeed I had a great interview with Helen Dalley on Sky Business yesterday afternoon talking about this very topic, but what struck me as we were chatting was that while I was saying the Aussie was a strong chance to pull back from current levels I was also saying that the Aussie is likely to head toward 85 cents in the year or so ahead.
Dalley found that a little confusing. That was my fault because I wasn't clear about the timeframes.
And that's important because for more than 20 years now - since I first started trading currency markets - my answer to the question "what's the outlook for the Aussie (or other currency)" has always been "what's your time frame".
So in the short term 80 cents might be a bridge too far given the likely CPI result tomorrow, speech from Governor Lowe, and potential reinforcement of a positive US dollar outlook from the Fed in this week's FOMC meeting.
But think about it, if the RBA is right on growth then Australia is going to experience the rates of growth president Trump promised for the US. But it increasingly seems that the US, Europe, Japan, and the UK will all be languishing way behind in the growth stakes over the next year or two.
So again, if the RBA is right on growth then rates WILL rise in Australia, growth will be strong, and the Aussie dollar will have an upward bias.
That of course will be tempered by bond spreads, where they move, commodity prices, and investment sentiment toward overall global markets as well.
But if the RBA is right then it's going to be increasingly difficult for them to jawbone the Aussie the dollar successfully. Time will tell.
Now for the price action and the Aussie is showing all the signs of topping in the immediate term. But in the grand scheme of things this top only presently suggests a pullback to 0.7728/30 (38.2%) or maybe 0.7730 (61.8%) or somewhere between those two levels.
That's still very high relatively to where we have been - both recently and in recent years. So the RBA will likely exercise it's jawbone as often as is possible in the next little while. They'll be hoping US data improves, that the fed stays the course and that the US dollar rises.
If not there is every chance after a pause the Aussie dollar's rally kicks to another level.
Anyway, here is the daily AUD/USD chart at the moment.
Have a great day's trading.