Originally published by AxiTrader
Key Takeaway
The Australian dollar rallied to a high of 0.7609 last night. But the sellers were lurking once again and the Aussie has dipped back a little to 0.7579.
That's not a huge move by any stretch of the imagination. But with a market that is as long as it has been for almost a year and with the key drivers of the AUD/USD rally - commodities for example - showing signs of a turn the pressure remains.
That said the RBA governor's statement this afternoon, which is likely to accompany a decision to leave rates on hold, may provide some support for the bulls if it again highlights the positive outlook for growth with little prospect of rate hikes.
But he might just take the opportunity to subtly jawbone the AUD/USD lower.
What You Need To Know
One of the remarkable things in markets at the moment is just how sanguine traders are about a clear message from the federal reserve that not only is March live but that it is the start of multiple rate hikes in 2017.
That's expressly what fed chair Janet Yellen said in her speech Friday when she noted "the process of scaling back accommodation likely will not be as slow as it was in 2015 and 2016".
Yet even as the market prices the chances of a Fed rate hike this month above 80% the US dollar is not overly strong and in index terms is still below 102.
That reluctance of traders and investors to add to their US dollar longs in this environment has helped the Australian dollar find some support again overnight and aided it's rally above 76 cents.
But there are subtle signs that the key drivers of the AUD/USD rally - commodity prices, investor risk appetite, stable interest rate differentials - have turned negative for the Aussie in the past week or so.
This turn has coincided with a market which, at least based ion CFTC data for last week, went as long as it has been since the Aussie's failed attempt above 78 cents last April.
That means there is potentially plenty of supply overhead on any rally in the Aussie. That's doubly the case because the turn in the AUD/USD, and its drivers, accords with many investors forecasts of the outlook for the Aussie dollar.
Indeed the latest series of Reuters polls show forecasters are expect the AUD/USD to fall to 75 cents in 1 month, 74 cents in 3 months and 73 cents on a 6 and 12 month basis.
Forecasts are just that, they aren't set in concrete. But what they do show is that a large part of the market still retains a bearish bias. The failure to hold above 77 cents and the subtle turn in commodities like iron ore and copper will encourage these bears that they are right.
And it's unlilkely that the RBA will go out of its way to disabuse them of their thinking. If, as governor Lowe told a parliamentary committee two Friday's ago, rate cuts are off the table because of the potential impact on housing prices then a lower Aussie dollar is the best way to add stimulus to the economy.
How governor Lowe can engineer such a move in his statement today, when he's likely to reinforce the strength of the domestic economic outlook, is difficult to guess at. Unless of course he highlights that the RBA expects commodity prices are going to pull back from recent highs.
That might do it. We'll know at 2.30pm AEDT this afternoon - no move is expected.
Looking at the technicals for the Aussie retains a downside bias on the dailies based on my system with a test of the 38.2% retracement level in the low 75 cents still on the cards. On a short term basis - 4 hour charts - support is in the 0.7564/69 region with resistance in the 0.7600/10 region.
Here's the daily chart.
Have a great day's trading.