The AUD Is Higher Again And It's Eyeing Off Huge Resistance

Quick Recap

The combination of the Fed, BoJ and RBNZ decisions highlights that monetary policy around the globe is going to remain highly accommodative even if the Fed is promising a rate hike this year.

That has supported stocks, the Australian dollar AUD/USD and commodities overnight. Traders will now be eyeing significant resistance overhead around 0.7720/30

What You Need To Know

The Australian dollar rocket back above 76 cents overnight rallying hard on the heels of the rally in stocks, and the mild fall in US interest rates after the release of the Fed decision made it clear that even though they still believe rates will rise it is going to be a shallow and protracted cycle.

As I highlighted in my piece discussing what we learnt from the Fed, Bank of Japan and RBNZ in the past 24 hours taken together the actions of these three central banks highlight that the period of monetary accommodation is not coming to an end as soon as some of us thought the BoJ and Fed might have signalled.

That the RBNZ promised more easings this morning simply underlies that point.

That means yield matters. That means stocks are free to rally on and wait for the US earnings season. The Nasdaq 100 closed at a new high this morning and the S&P 500 and Dow Jones Industrial Average are not far from their high water markets. It also means the US dollar strength has been undermined

It also means the US dollar strength has been undermined. That has implications for forex rates but it also has implications for commodity prices. Last night Gold, Crude Oil, iron ore, Copper and other commodities all rallied.

This in turn helps commodity and energy stocks, which then feeds back into overall stock prices and risk appetite. In the end we end up with a virtuous cycle for Aussie dollar bulls.

Naturally, in the same way the RBNZ said this morning it wants the USD/NZD to fall the RBA will not be overly happy with the Aussie dollars rise and prospects for further gains.

But in the current global environment there is not terribly much the RBA can do about the Australian dollar unless it wishes to cut aggressively.

That may be a topic RBA governor Phil Lowe is quizzed on this morning when he fronts parliament for his first grilling as governor. No doubt the level of the Aussie will come up as well.

But as the Aussie dollar rallies traders will be eyeing some very important longer term resistance. The recent high at 0.7730 before the collapse to 0.7450 was bang on the convergence of a number of trendlines folks are watching.

0.7710/30 is resistance and we know the supply zone has been above 77 cents for some months now.

Can the Aussie make a run at this zone - of course if stocks keep rallying and commodities stay firm. But if the Aussie can break it could signal a big change in the outlook. It has to break first though.

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Have a great day's trading