Originally published by AxiTrader
Quick Recap
The US dollar was a little weaker overnight after dovish comments from Fed Governor Brainard but it was also the fact buyers emerged again in the accumulation zone between 0.7485 and 0.7520 that helped drive the Australian dollar higher overnight.
All eyes on Chris Kent from the RBA, NAB business survey, and Chinese retail sales, urban investment and industrial production data.
What You Need To Know
The Australian dollar AUD/USD was under pressure yesterday falling below trendline support around 0.7520 as stocks on the local market were pummelled and risk sentiment really went off in our timezone.
That selling pressure continued into European and early US trade with the Aussie dollar resting right on the August low in the lead up to the speech from Fed governor Lael Brainard. That it was able to hold in the 0.7485/95 region (the actual low around 0.7493) and above the August lows speaks volumes of the demand that exists in what appears to have become the accumulation zone for traders who are playing a broad 75-77 range in the AUDUSD at the moment.
From a price action perspective that recovery from under 75 cents and the AUDUSD's ability to climb back inside the current wedge means that the fall was a false break. So even though the daily charts don't point to any overwhelm rally back to 77 cents any time soon the 1 and 4 hour charts suggest that the Aussie can rally back toward 76 cents.
Data Is Important
But whether or not that rally eventuates in no small part depends on three things. What the NAB business survey has to say about the outlook for the Australian economy when it is released this morning, what the Chinese data on retail sales, urban investment and industrial production says about the state of Chinese growth, and what happens to the US dollar in the day and days ahead.
On the NAB survey it is worth recalling that conditions and confidence both fell to +8 and +4 respectively last month. That's still above the long-run averages. But profitability dropped sharply to +7, even though trading held very strong at +16 and employment relatively strong at +4.
Of most import from my perspective is whether the NAB business survey, which for me is the most important single economic release each month, confirms or denies the recent down tick we've seen in Austalia's high-frequency economic releases. Things like retail sales, the manufacturing and services PMI's.
Looking at China the fact that the retail sales growth remains sticky above 10% has been a positive for the market which was super-negative on China earlier this year. The market is expecting 10.3% year on year growth for August. On industrial production the market is expecting 6.1%, a small 0.1% increase from the previous month, and on urban investment the market is expecting 8% year on year growth.
How this data hangs together will help determin whethe rht eh Aussie can rally back toward 76 cents or drift back toward the accumulation zone below 0.7520.
Have a great day's trading
Greg McKenna
Chief Market Strategist AxiTrader