Originally published by AxiTrader
The Australian dollar made a new high for this run last week, eclipsing the 2017 high and hitting 0.8135 on what was a wild ride on forex markets. It was all about the US dollar of course, as its chronic weakness became acute after hamfisted - but possibly revelatory - comments from US Treasury Secretary Mnuchin that seemed to cheer US dollar weakness.
Of course, he said what we all know. A country can benefit from a weaker exchange rate. But coming after the imposition of tariffs on washing machines and solar cells and with President Trump still threatening to scotch NAFTA, for many traders Mnuchin's comments seemed to bolster the administration's mercantilist credentials and echo another era in currency markets.
That Commerce Secretary Ross almost instantly tried to clarify Mnuchins comments as consistent with policy, that Mnuchin himself sought to do the same and that President Trump talked of looming strength in the dollar as the US economy strengthens turned things around for the buck on Friday.
But the market's reaction in aggressively selling dollars once again on the back of fairly benign comments from BoJ governor Kuroda that Japan - with a core inflation rate of just 0.9% - that "we are finally close" to the BoJ's 2% target. Shows just how poor US dollar sentiment is right now.
That is why the Australian dollar has been so strong recently.
Indeed the AUD/EUR price correlation over 35 days is now up at 0.9717 (1.00 being perfectly correlated). The AUD/CNY correlation over 35 days sits at an equally high 0.9768. This really is a US dollar weakness driven move.
At 0.8104 this morning the Aussie is only a little off its high in early Asia trade as we await a big week for markets.
Here at home the NAB business survey tomorrow will be interesting as a pointer to the outlook. But Wednesday's release of Q4 CPI could make or break this rally. At least in a relative sense and on the cross rates.
Recall last week's New Zealand CPI printed 0.1% for Q4 against expectations of a 0.4% print. That saw the kiwi collapse and AUD/NZD (among other kiwi crosses) surge.
The market is currently looking for a headline rate of 0.7% and year on year rate of 2%. Any material deviation from that will drive the Aussie.
Likewise - given the correlations - so will the moves in the US dollar and how that translates to other currencies values will drive the Aussie. And on that front I'm watching the USD/CNY rate as much as I'm watching any moves in the euro or the yen.
Anyone who remembers the Chinese decision to devalue the Yuan back in 2015 will remember that at that time the press was full of articles which suggested we may be seeing the start of a "currency war" as this article from Reuters at the time highlights.
Nothing of the sort happened then. And I do not believe anything of the sort is about to happen now from the US or any other nation. What Mnuchin said was hamfisted and he should have known better. But the Administration is aware of its massive funding task and as a result has sought to calm the horses lest it destabilise interest in that new issuance.
But I raise it this morning because at 6.3199 this morning the Yuan is back near the 6.20 level from where it was devalued in 2015. That could be an important point of pushback from Chinese authorities either overtly or by joining the ECB and Boj/Japanese rhetoric which has said the Administrations comments were unhelpful.
That, in turn, could help the US dollar find its footing.
Data, of course, is important as well. And on that front the Fed meeting and nonfarm payrolls along with EU inflation and growth data will be important on whether or not the US dollar can stablise.
Turning to the AUD/USD chart outlook and it's clear that the uptrend remains intact. In fact the Aussie went close to tradinig both sides of the current uptrend channel on Friday after trading both sides over the course of the previous three days trade.
So it's volatile withing this uptrend.
On the week 0.7990/8000 is support while resistance in this trend is currently 0.8146 rising 9/10 points a day.
Longer term 0.8270 is the inside trendline resistance within an overall uptrend from the low back in early 2016.
Here's the daily chart.
Have a great day's trading.