Originally published by AxiTrader
The Australian dollar is trading a little under 0.7950 this morning after a combination of technicals and the much lower than expected trade surplus yesterday drove it a low around 0.7914.
That's a pretty solid performance really, all thing considered. And it speaks to the enduring support the Aussie still has in this environment where the US dollar is still on the nose.
But surely the Bank of England's downgrade of its economic and inflation forecasts overnight - which knocked sterling for six - and the ECB bulletin explain the enduring forces restraining inflation in the EU must go some way to pointing out to the US dollar bears that neither the ECB or BoE is in a hurry to increase rates.
And this, along with the rally in long bonds, must surely put to bed the ludicrous idea from a month or so back that there was some sort of coordinated central bank tightening cycle coming down the pipe.
For the moment though traders are accentuating the negative for the US dollar and that is helping the Aussie hang tough.
Earlier this week Governor Lowe identified the risk that a higher Aussie dollar poses to the economic outlook and I'd expect that view to be expanded today in the pages of the quarterly Statement of Monetary Policy the RBA will release at 11.30am this morning.
Indeed you don't have too far to go to see the impact of a stronger Aussie on the economy.
Earlier this week I highlighted it wasn't our mineral exports that were necessarily at risk from the higher Aussie but that our services exports certainly are. Recall that education, personal travel, and professional services are all in Australia's top 10 export earners. Education is 3rd behind iron ore and coal.
That's what made yesterday's smaller than expected trade surplus important for the Aussie dollar and the economic output. Service receipts, and especially tourism, look like they are coming off the top and in decline (the chart is in my morning Markets Wrap).
Equally analysis by Callam Pickering, economist at job site Indeed.com, shows that net exports to subtract 0.4% points from real GDP growth in the June quarter; subtracting 1.4% points from nominal GDP growth. He suggests we could see a pretty weak quarter of growth, which, as I tweeted, is a big "Ahem" for Aussie dollar bulls.
That concern, or at least the impact of a higher Aussie dollar on growth remains something I expect the RBA to highlight in the SoMP at 11.30am. It is, however too early for the RBA to materially downgrade its current economic forecasts - we know that because the governor told us Tuesday the RBA still sees growth at 3%.
Also out at 11.30 is retail sales data for June and the volume's data for the second quarter.
After a couple of solid months, economists are only expecting retail sales growth of 0.2% for the month. The quarterly data is expected to grow 1.2%.
It's going to be an interesting few minutes just after 11.30am.
And that brings me to the price action in the AUD/USD.
The daily chart is still showing signs of topping out and a bias toward the 38.2% retracement of the latest move which comes in at 0.7876. My system is still short.
Shorter term, looking at the 4-hour charts, there is a little downtrend line that comes in at 0.7955, the recent breakdown point at 0.7962/68, and above there 0.7993
And then of course tonight at 10.30pm we get the release of US non-farm payrolls. What a day.
Have a great day's trading.