Originally published by AxiTrader
Quick Recap
The Aussie dollar is almost exactly where it was 24 hours ago at 0.7609 this morning. But in the context of a stronger US dollar, weaker, JPY/USD, EUR/USD, GBP/USD and NZD/USD that's a solid performance.
That's to be expected however given that commodities outside of oil were also higher and the stock market rally had an element of "relief" to it which signalled risk was a little bid. Such a combination is a good thing for the AUD/USD.
What You Need To Know
The rally in Crude Oil, Copper and iron ore over the past 24 hours has enabled the Aussie dollar to climb back from weakness which knocked it back to the mid 0.7570 region overnight and resist the overall strength of the US dollar which saw it rally against the Euro, Yen, Pound and Kiwi.
That has it back above 76 cents at 0.7603 but stronger across the board on the crosses save for the AUD/CAD due to the strong oil induced rally in the Canadian dollar.
Naturally the rally in oil and commodities more broadly is good for the Aussie dollar. It's a long-standing relationship that currency traders have been using as an indicator of the outlook for the Australian dollar for many decades.
In no small part it is the turn in oil and commodities that turned sentiment and lifted the Australilan dollar from its lows of early 2016. The chart below shows the relationship between the Aussie (yellow), WTI crude (purple), and CRB (green).
But commodities are only one of many inputs into what drives investors and traders fair value estimates of the AUD/USD rate. So in truth the Australian dollar is still stuck, mid-range, between what is a broad 0.7450/0.7750 range with the inside parameters of 75/77 cents as traders wait for the next shoe to drop.
But perhaps that catalyst for change, for a potential break higher, is coming as Russia joins OPEC in signalling that the period of low prices for oil has cut too deep and must be reversed.
Overnight Russian president Vladimir Putin said “Russia is ready to join the joint measures to cap production and is calling for other oil exporters to join.” He said depressed prices had lead to underinvestment which at some point would lead to deficit at some point and trigger “unpredictable jumps” in prices.
“That's why in the current situation we think that (an oil output) freeze or even an oil production cut is likely to be the only right decision to maintain the stability of the global energy sector,”Putin said.
While the Saudi Oil Minister Khalid al-Falih stressed prices shouldn't rise to far noting that “OPEC needs to make sure we don't crimp too tightly and create a shock to the market. We are going to be very responsible.” A move higher in oil is inherently inflationary for the global economy and will release some of the pressure central banks fell they are under.
Couple that with the nascent moves toward fiscal stimulus and the Australian dollar could surprise everyone in 2017 by breaking higher as I expect.
For the moment though the Aussie has support at 0.7599 and then 0.7580 and has a bias toward the 0.7620/40 region, perhaps a little higher, on the day.
Have a great day's trading