Originally published by AxiTrader
Key Takeaway
The Fed's decision to raise rates was read as a dovish hike by the market as the statement, dot plot, and Janet Yellen's press conference oozed stability and the measured pace of rate hikes in the US.
That the market reacted this way when the Fed signalled two more hikes in 2017 and then 3 in 2018 is intriguing. But it shows that after the strong language from Fed speakers before the blackout this month had many - me included - expecting a stronger message from the Fed.
As a result of dovish read and US dollar's fall the Australian dollar rallied back above 77 cents as it fed on the double whammy of a weaker dollar and the associated strength in and surge of commodity prices.
What You Need To Know
77 cents again.
That's where Aussie dollar bulls have driven prices this morning in the wake of the dovish read the market has taken on the FOMC decision to hike rates and the path it has set out for interest rates over the coming 2 years.
That AUD/USD strength is a natural result of the confluence of a number of positive drivers for the Aussie.
The stock surge screams a lift in investor confidence and risk appetite. Tick.
The rally in US bonds compressed the Aussie/US 2 year bond spread. Tick.
The weakness in the US dollar lifted all boats. Double tick.
I say double tick because not only does a weaker US dollar naturally strengthen the Aussie dollar but the weaker US dollar when it feeds into a surge in commodity prices then feeds back into the Australian dollar via the linkage where traders see the Aussie as a commodity currency.
But that in the blender, mix it up and the fair value level it would suggest for the AUD/USD is naturally lifted.
So the AUD/USD ran to a high of 0.7719 overnight and is back around 77 now. That's a gain of around 2% from this time yesterday.
The question for the bulls now is whether this is going to be another one of those failed attempt is above 77 cents we've seen over the past year or whether this is something different this time.
For me the key is not just the US dollar but the actual price action of the Aussie and whether it can break up and through 0.7740/45. That level would take out both the high of the year and also see the Aussie trade above the downtrend line from the high atop 78 cents last April.
Whether the AUD/USD can do that, and whether the AUD can continue to outperform on most crosses in the short term depends on the release today of the February Australian jobs data.
The market is looking for an increase of 16,000 jobs and an unemployment rate of 5.7%. And while there are no forecasts for a part time versus full time split it is also usually an important consideration for traders when they evaluate the outcome of jobs.
Any weakness in the AUD/USD after jobs though is likely to find support in the current environment where the US dollar's weaker run doesn't look finished.
Have a great day's trading.