Originally published by AxiTrader
The Australian dollar is higher this morning after the continued rally in metals, copper in particular, positivity in stock markets, and a surge in the Canadian dollar all gave it the strength to break up and through the 200-day moving average which had constrained its rally for the past five days.
Clearly at 0.7703 this morning it's not exactly a big break. But the AUD/USD is near the high for the past 14 hours at 0.7705 and I am now targeting the 38.2% retracement of the fall from just above 81 cents to the recent lows – that level is 0.7730/31.
With metals doing so well, with mining and metals shares doing so well relative to the market, and with China signalling it will go for growth rather than aggressive economic restructure the Aussie can benefit from a weaker US dollar and positive sentiment. And of course now that the 200 day moving average at 0.7592 has been bested some traders will also take that as a bullish indication.
Of course in the first instance, the Aussie's rally off 75 cents a week or so back is a reaction to the fast fall. But all of the factors cited above - especially this renewed positivity to the outlook for what are the key historical drivers of Aussie dollar strength - global growth, metals and the performance of assets which reflect this - has seen sentiment toward the AUD/USD improve.
That's not to say the interest rate differential is suddenly no longer relevant. That's certainly not the case. But as these other markets have improved so too has the AU-US 2 year bond spread which has managed to get back in the black and sits at 9.5 points as I write.
Yes, it's still nine-tenths of not very much. And there is still little incentive for international bond traders to buy Aussie bonds. Unless that is they are more positive on what might be the usual drivers of Australian dollar strength and can see a capital gain on their bonds in that regard.
And it is through this channel that I’m more positive than most into 2018 for the Aussie. It doesn’t mean it can’t dip. But my sense is the preconditions are for a test back to the 2017 highs at some point.
To the charts now and 0.7731 is the next target. Support is the 200 day moving average at 0.7692, then 0.7660.
Here's the chart.
Have a great day's trading.