Originally published by AxiTrader
It may not last but the Australian dollar has outperformed most of its rivals in the G10 currency space over the past 24 hours as tensions over North Korea and a materially improving US data flow contribute to what has been a broad-based US dollar recovery.
As a result, AUD/USD is still sitting above 79 cents at 0.7913 after making an overnight low of 0.7886.
Certainly, the Aussie failed for the second day running in the 0.7940/45 region. But when judged against a backdrop of much weaker than expected Chinese and German trade data over the past 24 hours the Australian dollar’s performance has been quite strong.
I say that because both data points question the outlook for growth both domestically and across the globe. That’s a situation where the Aussie would normally come under pressure.
But the reality is that while US data flow collapsed in recent months, while European, UK, and Japanese data flow has been sliding Australian data has – on the whole – printed much better than pundits thought. Throw in the recent strength of iron and coal prices plus a weaker US dollar and the Aussie soared above 80 cents.
So the release yesterday of another strong NAB business survey was another indication that the RBA’s outlook for the economy seems to be the right one.
Indeed the NAB survey was a cracker showing broad based strength across multiple sectors of the economy and across the states of the nation. Conditions rose a point to +15 while confidence followed conditions higher leaping 4 points from 8 to 12 in July. Trading, profitability, and employment were the bright spots for me.
As I always say, this is the single most important data point each month I look at.
We know business is doing well. So we know overall demand in the economy must be going okay. And by inference we know that consumers – despite what they might say sometimes – are doing well also.
This is a big part of the Aussie is outperforming at the moment and hanging above 79 cents.
That said though, if, as is a strong possibility, the US dollar’s nadir for this run is in place then the Aussie dollar is likely to head toward the 38.2% retracement of this run which comes in at 78 cents. But unless markets go into a funk it is likely to outperform on many crosses.
Which brings me to the price action and the charts.
0.7875/78 is the key to the bulls castle. Based on the current set-up, and the recent lows that’s the region that needs to break to send the Aussie lower. Back toward the 38.2% retracement of the move from below 74 cents which sits around 78 cents.
The trend line you can see from the origin of that move comes in around 0.7765/75 today and can’t be ruled out as a target.
Topside rallies again look likely to be offered below 0.7950.
Have a great day's trading.