Originally published by AxiTrader
Key Takeaway
The Australian dollar came in for a hammering in early London trade yesterday. That knocked it down through 76 cents before it eventually found support at 0.7588.
It's bounced solidly since then and finds itself back at 0.7630 after the solid US data and stocks rally saw risk appetite improve underpinning a more positive attitude toward the Aussie dollar.
It's counter-intuitive to say but for the moment what's good for the US dollar is also good for the Aussie.
What You Need To Know
A few days back I wrote that if the markets were really going to unwind the Trumponomics rally then the Aussie dollars rally was over.
The reason for that is that the reflation and growth trade has buoyed key drivers that have underpinned the Australian dollar's rally from below 72 cents in late 2016 and early 2017. Things like risk appetite, base metals, expectations about global growth and so on.
Throw in a US dollar that had stalled and we had the perfect conditions for the Aussie to rally to 77 cents and possibly beyond.
All was going to plan until traders started to fret about the efficacy of this Trump administration and their ability to deliver on the big tax and spending plans which will add to an already well performing - relatively - US economy.
The jury is still out on the ultimate impact on Trump's legislative agenda after the failure to repeal Obamacare. That's particularly the case given the way the president has taken to Twitter to attack members of his own party - the Freedom Caucus which sang the AHCA last week - and the unilateral ultimatum he gave GOP members of the House.
I'm in the camp that says he has made the passing and implementation of his agenda more difficult.
But it's clear that while the data in the US continues to point to a strong economy that stocks, and other markets, are going to give president Trump more time.
Last night's booming 9.5 point run higher in the Conference Board's index of consumer confidence and the related stocks surge are a case in point. Consumer confidence is now at a 16 year high and the jobs market is clearly a key driver of this.
That strength helped the US dollar find it's footing and make headway against the entire forex spectrum. So, as counterintuitive
But, as counterintuitive as it may seem what is good for the US dollar right now is also good for the Aussie dollar. That's because the US dollar benefits from positives associated with expectations about the outlook for the US economy.
The corrollary of that for the Aussie is that what's positive for the US economy is positive for global growth, commodity prices, investors risk appetite and so then it's also positive for the Australian dollar.
There's a point where a strong dollar and higher US rates work against the AUDUSD. But for the moment if a Trumponimcs unwind is being, or has been, averted, then the Aussie will again find support.
That's certainly what it did overnight - exactly where it should have as the price feel to the uptrend line of the 2017 rally. I know I say it often but if there was only one thing I was allowed to do on charts it would be draw trendlines.
Naturally that's still a steep and ugly wedge. So that the line holds is important for the AUD/USD outlook
So that the line holds is important for the AUD/USD outlook. IF it breaks then 75 cents is on the cards. In the short term the chance is there again for a run toward 0.7680/90.
Have a great day's trading.