Originally published by AxiTrader
Not terrible Chinese data yesterday and a weaker US dollar in the lead up to the FOMC decision saw the Aussie dollar break up and through the top of the recent range yesterday at 0.7466.
As that US dollar weakness intensified - driving the US Dollar Index Index to 7-month lows - the Aussie pushed up to 76 cents and then ultimately to an overnight high of 0.7535. That's just 5 points shy of the level I've been saying it could run to on the break. So it's mission accomplished in that sense.
And it might be mission accomplished for the bulls after the much more hawkish than anticipated Fed saw the US dollar rally sharply from its lows. That's driven the AUD/USD back to 0.7586 this morning. Still above the break. But well off the highs.
Is it mission accomplished? That's a question that in no small part now relies on the outlook for the US dollar because the other drivers of the Aussie dollar such as commodity prices and interest rate differentials still argue for a lower Aussie.
Indeed while the Reuters CRB index is not exactly representative of Australia's export basket it collapsed 1.6% last night with the big fall in oil. Combine that with the falling price of iron ore and still contracting bond spread and the positives supporting the Aussie dollar's rally are lacking.
But the technical outlook is also fundamental to price action in the short and medium term as well. So the range break yesterday was always going to elicit some sort of rally once prices pushed past 0.7566.
And while you cant see it on the daily chart the low since the FOMC meeting decision at 4am this morning has been 0.7567 my charts tell me. Right back on the previous support zone.
That level, the old range top at 0.7566, is going to be very important today as traders await the release of the May jobs report at 11.30am. The market is currently looking for a print of +10,000 and an unemployment rate of 5.7%. The RBA has told us - via the May meeting minutes - not to worry about the full-time/part-time split. But traders are likely to still look at this as an indicator of the underlying strength of the jobs market.
And that's important because there are real and growing concerns about Australia's household sector. Solid jobs growth will go a long way to assuage those fears. But if we see a weak number today the AUssie will come under pressure and the focus will shift to the recent range bottom at 0.7515/20.
Have a great day's trading.