Originally published by AxiTrader
Key Takeaway
Which currency is both global traders favourite bet on growth and also a currency that sees a volume of trade well beyond its importance in the global economy?
The answer to both questions is the Australian dollar.
So it's no surprise that while the euro trades back down to the levels of early January, as the yen comes under pressure, and as the US dollar gains support from assertive Fed speakers - apparently keen on hiking rates sooner than later - the Aussie dollar remains bid.
That bid was in turn reinforced by RBA governor Lowe again reiterating the RBA's belief the Australian economy will bounce back strongly.
What You Need To Know
The AUD/USD made a low of 0.7650 last night as the US dollar was a little stronger on the back of more rate hiking Fed speak.
Loretta Mester’s comments Monday about how strong the US economy and the need for a rate hike were echoed by Philadelphia Fed President Patrick Harker who said that he was likely to support a rate hike when the Fed next meets on March 14 and 15.
That helped the US dollar trade higher before the somewhat disappointing Markit PMI's took the wind from its sails. The test is at hand of the RBA's upbeat read on the AU.
That's left the Aussie trapped again just below 77 cents but with an important test at hand of the RBA's upbeat read on the Australian economy.
I say that because this morning sees the release of the first partial indicator of GDP growth - construction work done - in the run-up to the release of Q$ 2016 GDP next week on March 1.
Today's data precedes tomorrow's important CapEx release which traders will be watching closely for signs of business investment. That's where a possible wrinkle, misunderstanding, could appear in the RBA's narrative.
I say that because the RBA is saying growth is going to bounce back. But governor as part of that Governor Lowe said in his speech this morning that:
"For some time, a major factor shaping our forecasts for the Australian economy has been a rebalancing of investment between the resources and non-resources sectors. We estimate that the decline of mining investment back to normal levels is around 90 per cent done. So this headwind, which has been weighing on GDP growth for some time, will blow itself out before too long."
The key here its still a head wind and may still be a drag on growth. Which means he could be right about growth, right about the less bad outocmes for investment and mining drag, but still end up with a disappointed market.
We'll know when the data prints.
But in the meantime it's clear the support remains for the Aussie and the buy the dip mentality predominates thinking.
Naturally that's because the preconditions that have historically been associated with a stronger Aussie dollar are falling into place globally. As I've written often that is improving economy and risk appetite, commodity strength, an RBA not in a hurry to ease, and a US dollar that while strong is not galloping away.
It's still the case the AUD/USD is in a 0.7580/7600 to 0.7720 range and only a break and hold of either side will get traders hearts racing again. But it's also clear support remains solid.
My system is still short and shows a bias to lower levels. naturally it's not 100% fool proof - no system is. But it's interesting nonetheless that I'm still short.
Have a great day's trading.