Originally published by AxiTrader
The laws of supply and demand still work.
That was the message the RBA governor wanted to give on the outlook for wages and inflation in Australia during his speech in Brisbane overnight.
Lowe said:
"The laws of supply and demand still work. Even at the moment, we see some evidence through our liaison program that in those pockets where the demand for labour is strong, wages are increasing a bit more quickly than they have for some time. The Reserve Bank's central scenario is that, over time, this will become a more general story."
That's great news for the economy if the governor is right.
But if he is right, then the laws of supply and demand will also be working in forex markets as Aussie dollar traders buy more AUD as the expected increase in inflation adds to an already positive backdrop for domestic and global growth.
The thinking will flow that despite governor Lowes clear message that rates are on hold for an extended period the time to end record low RBA interest rates is coming nearer.
Now of course governor Lowe did say "an appreciating exchange rate would not be helpful" for growth in his speech last night with a similar theme in his statement after the RBA board meeting yesterday.
"An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast," Lowe said in his statement yesterday.
But that's against a backdrop of the RBA expecting Australian growth to get back to potential and market expectations that today's Q2 GDP print will come in around 0.9%/1.0% for the quarter.
So it is no wonder that the AUD/USD is sitting back up near 80 cents at 0.7995 this morning. I reiterate what I said yesterday, "were it not for the uptick in tension on the Korean peninsula and associated mild risk aversion traders would be focussed on a move toward the highs for this year around 0.8050/60".
Probably higher.
Of course, there are still risks from North Korea and I'm not convinced the US won't be goaded into a military response. Equally the ebullience and expectations around a strong GDP release at 11.30am AEST today pose some risk that the move has already been priced.
So let's look at the charts and see what they say.
The daily chart shows a clear respect for the current uptrend line in broad terms and on a close basis. The current support level is 0.7935, then 0.7900 and the 0.7865/70 region before the 38.2% retracement level of the rally from below 74 cents to the mid-0.80's recently comes in at 78 cents. That's also roughly the recent low.
Topside resistance is last night's high at 0.8028 and then 0.8065. A break of the latter level would suggest 0.8333 as a Fibonacci projection over the medium-term.
Looking at the 4-hour charts the Aussie is clearly in a mild uptrend with topside resistance at 0.8037 while the bottom of the channel comes in around 0.7890/95 at present. Short term support is at 0.7965/70 and 0.7945/50.
0.7930 is the 61.8% retracement level of the last rally on the 4-hours and coincides roughly with the larger time frame trend line making this region the one to watch.
Have a great day's trading.
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