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The AUD Was Hit Hard Overnight As The US Dollar Hit A 6 Month High

Published 12/10/2016, 12:16 pm
Updated 06/07/2021, 05:05 pm
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Originally published by AxiTrader

Quick Recap

The AUD/USD has fallen to 0.7532 this morning losing around 80 points from where it was 24 hours ago as the US dollar pushed to a 6 month high in dollar index terms (97.71). That move started from the moment that Treasury bond futures opened during the Asian session yesterday at the highs (in yield terms) of Friday night.

That reinforces that the outlook for interest rates is the key driver supporting the US dollar at the moment. That support is underpinned by the increasing acceptance that the Fed will be raising rates in December. But it will be tested by the release of the minutes to the September FOMC meeting at 5am tomorrow morning.

What You Need To Know

The Aussie looked pretty healthy early yesterday climbing back above 76 cents and into my 0.7620/40 zone I was looking for with a high at 0.7627. But that all changed from the minute the US bond futures opened with a prices falling to an implied 1.77% - Friday's high.

That pushed the Aussie dollar, and the Yen, pound, and Kiwi all down around 0.3% and reinforced that interest rates and the outlook for the Fed are still the key driver of US dollar strength. That was reinforced when deputy governor McDermott from the RBNZ said rates will need to be cut which drove the Kiwi to a 4 week low and helped lift AUD/NZD to a high of 1.0699.

It's off a little this morning as the Aussie drifted lower and sits at 1.0682.

Chart

Looking at the Aussie dollar directly the US dollar's strength has a double whammy effect because part of the reason the S&P was lower and risk went off are concerns about what a stronger US dollar (at 6-month highs as you can see in the USD index chart above) could do to corporate earnings. That is, there is some fear that it could act as a drag on earnings going forward for those companies that are exposed to its movements.

Stocks were also hit by comments from Igor Sechin, Rosneft's head, that his company sees no reason to cut production. That's in complete contrast to comments from Vladimir Putin that his nation is ready to cooperate with OPEC the night before.

Throw in the fact that a stronger US dollar also naturally weighs on commodity price and the AUD/USD finds itself down at 0.7535 this morning. That's under the support we talked about yesterday and closing in on the trendline which stretches back to the lows earlier this year that is currently sitting at 0.7485.

The the only major AUD crosses the Aussie is winning on at the moment are the AUD/NZD and the GBP/AUD suggests the Aussie may be battling a little at the moment and traders knowing where topside resistance is may be fishing to find the real support. On that basis the trendline, and recent low at 0.7450 are key.

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Have a great day's trading

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