Originally published by AxiTrader
The Australian dollar made a low of 0.8018 overnight and is currently sitting at 0.8025 roughly 1 cent below Friday's highs. That move - and loss of 0.4% to open the week - comes despite the big lift in risk appetite across global markets in the wake of a relief rally after worries over North Korea and Hurricane Irma seem overdone.
Normally a risk on tone in markets would be positive for the Aussie dollar, especially when metals found their feet yesterday and iron ore stabilised after a tough few days.
But the very nature of exchange rates is that they are bilateral - ie Australia and US or US and Japan and so on - and that they have multiple drivers across various time frames. That makes the notion of "value" a difficult one.
And it's why "fair value models" often have multiple inputs to derive an estimate of where an exchange rate should sit.
For the Aussie those inputs are usually associated with the very drivers I often talk about - global and domestic growth, relative interest rates and bond spreads, a measure for risk appetite, and of course the US dollar (there are a myriad of drivers that naturally filter up into these key groupings).
Which brings me to the Aussie and it's pressure right now.
Yes risk appetite has risen, yes global and domestic growth looks solid, and yes metals found a bid overnight. But a large part of the Australian dollar's rally in recent months has been the capitulation of the US dollar.
So it's the US dollar, and its prospects that dominate right now. That's because many traders are wondering if the US dollar has put in a sustainable, even interim, bottom. As I noted yesterday it's too early to tell just yet.
As I noted yesterday it's too early to tell just yet. But the signs are there technically - in the euro, the yen, pound, the US Dollar Index, and many other pairs - that reversal is in the offing.
That's what has the Aussie under pressure today. Will it last? That's the other question forex traders are wondering.
Before I get to the technicals it is worth noting that the NAB's business survey will be released today in Australia. The last readings were 15 for conditions and 12 for confidence. That's up near post-GFC highs and a strong sign the RBA's upbeat outlook for the Australian economy is on track.
It's not usually a market mover but if it's unexpectedly weak today given the set up it might become one.
Looking at the daily chart if last night’s low of 0.8018 gives way then a move to 0.80 cents seems on the cards, likely 0.7960/80. A break of this latter region would take out the trend line from the start of this rally and could lead to heavy selling and long liquidation toward 78 cents.
Turning to the 4 hour chart now and the AUD/USD is getting really interesting. It is currently respecting my slow moving average and uptrend from the August low around 0.7870. In doing that it is also holding above the overnight low at 0.8018 over the past 7 hours. This is the level to watch and aa break would open up a move to next Fibonacci support around 0.7997/0.8003 which is where the
This is the level to watch and aa break would open up a move to next Fibonacci support around 0.7997/0.8003 which is where another trend line lies. Through there and it's 0.7960/70 and 0.7930.
Resistance at 0.8055/65 would have to break for the Aussie to run back to last week's highs.
Have a great day's trading.