Originally published by AxiTrader
The Australian dollar ended the week on a positive note as it finally walked out and up through the downtrend line from the 81 cent high to close at 0.7609.
But it is a little lower this morning as traders react to the news on Saturday that the Senate finally passed its tax bill in a 51-49 vote. That means the competing bills of the House and Senate now go to conference where lawmakers seek to reconcile the differences between the two approaches to cutting taxes in the US.
But it's a material step closer to enacting the cuts President Trump has been seeking. So the US dollar is bid as traders in early Monday Asia trade focus on the stimulus of tax cuts rather than the maelstrom of the Russia/Flynn revelations - and quite frankly the President's weekend tweets.
Whether this US dollar strength continues, increases or proves ephemeral will depend as much on the data flow this week as anything else. As I noted earlier the question I’m wondering is whether or not it's enough to forestall the bears who at every turn recently have come out of the woodwork to find a reason to sell US dollars.
Of course that reason, if they want to take it, can be the Flynn/Russia investigation. All I’d say to that is US economy. It’s strong and looking more and more like with the added stimulus of tax cuts the Fed will need to increase rates four times next year. Ultimately this reality is likely to see the US dollar strengthen materially and for an extended period. The question is when.
And the question is whether the Aussie dollar can make some headway in that environment or, like most folks think, the preconditions I've outlined for US dollar strength are in fact going to hammer the Aussie lower.
That's a question for the future. But for the day and week ahead the reality is that the data flow here in Australia, the partials of GDP, the RBA governor's statement, the GDP release itself, retail sales, and trade will all determine how the Aussie ends the week.
I've mentioned often recently in my musings on forex, and we saw with the Canadian dollar on Friday, it's the local side of forex pairs not just a US dollar narrative that is the key driver at the moment.
So, with Q3 growth expected to be solid at 0.8% or better and a chance to hold at a 3% annual rate, with the governor expected to be fairly upbeat, and with trade expected to show another solid surplus this might actually be a positive week for the Aussie dollar.
I know that's out of line with all the negatives I've been highlighting recently. But if the data flows the way the RBA forecasts suggest it can then the Aussie might just find a bid.
Retail sales are going to be important too - maybe even more so than GDP - given the past three months weakness.
We'll see.
Looking at the charts then and the Aussie walked out and up through that trendline Friday. AT 0.7592 this morning (MT4 is about to open) it is back testing that line. A break below 0.7585 would suggest a false upside break and get the bears hot again. But a move back above 20 would support further gains to come.
Have a great day's trading.