Originally published by AxiTrader
Quick Recap
The Australian dollar is up 0.4% over the past 24 hours at 0.7363 off the 0.7311 low and also the 0.7382 high. The primary drivers of the move has been both the stall in the US dollar rally across the board and a resurgence in commodity markets over the past 24 hours.
Part of that is traders betting that the combination of US infrastructure spending on top of China's desire to keep growth steady in the 6.5-7.0% will keep demand for commodities strong. part of the strength is the positives I have been talking about for some time that accrue to the Aussie dollar, and part of it is upgrades from US investment bank Goldman Sachs (NYSE:GS) for both the Australian outlook and also commodities.
It doesn't mean the Aussie dollar is out of the woods. But it does add a buffer to what I said on yesterday's podcast that for me personally buying AUD/USD in the 0.7300/20 region felt like a good trade.
What You Need To Know
Catch a falling knife. It doesn't happen often in markets but traders stepped up and bought a little AUDUSD yesterday as metals in Shanghai rallied and oil was bid in Asia. Those moves continued in overnight trade with the price of oil up 4% while Dr Copper was up 2% and the rest of the metals complex well bid.
Why the difference in just a day for the Aussie?
Because like me I believe a large swathe of traders and investors see more positives than negatives for the Aussie dollar in this environment and in the months ahead. Certainly yesterday the NAB's currency strategy team put out a note saying that they believe the Aussie will fall back under 70 cents because the interest rate differential with the US will open up.
But the alternative view was Goldman Sachs who upgraded the outlook for Australia.
Over at Business Insider David Scutt reports Goldman said Australia’s economy “has moved through an important transition point” that will lead to faster economic growth and a higher Australian dollar in the period ahead. While on commodities, Bloomberg reports the investment bank is suggesting an overweight in commodities for the first time in four years.
It's only one investment bank but taken together it supports investors and traders who hold the view that we are at the cusp of a paradigm shift in the global economy and markets as Donald Trump's presidency ushers in a new wave of global fiscal spending and stimulus.
That's the thought process driving the combination of folks talking about the multiplier effect of Chinese and US growth when combined together. That's one of the reasons the Aussie found support in the past 24 hours when just yesterday I was wondering if the buyers would turn up.
Indeed the rally in the South African rand, and the move in the kiwi, and Canadian dollar also support this notion as being not just Aussie dollar, or Australia specific.
Looking at the charts and it's worth noting that on my system the price action has still not generated a buy signal. So far a raw analysis of the AUDUSD would say all I've seen so far is a stall in the fall as the price fell move than 2 standard deviations from the 20 day moving average (that's what happens a price moves outside the Bollinger Bands) which is usually a signal for a pause in a move.
The question in the next few days is whether the Aussie holds above the important 0.7290 region and moves higher - and generates a buy signal for my system - or falls again and heads toward 0.7150.
It remains a fluid time - here's the chart:
Longer term I see the Aussie looks to be in the buy zone as I've articluated in the past based on my drivers of value.
Have a great day's trading