Originally published by AxiTrader
Quick Recap
The US dollar continues to sweep most before it. In dollar index terms its sitting near 100 while the Yen is 1.63% weaker with USD/JPY up at 108.46 and Euro 1% lower at at 107.37. Emerging market currencies are weaker with Asia under pressure from a combination of worries about a Trump presidency.
In no small part that US dollar strength is because of changed economic expectations for growth, inflation, and interest rates under a trump presidency.
Yet against this backdrop the Australian dollar, which looked on the ropes as the week opened is, along with the Kiwi and CAD, hanging a lot tougher than might have been expected given the US dollar strength.
The Australian dollar is not out of the woods by any stretch of the imagination. But price action speaks volumes and investors and traders have voted with their pocket books - they haven't given up on the Aussie just yet.
What You Need To Know
Yesterday I said that I thought the big question for Australian dollar traders was "whether the Aussie at 0.7544 - 3 cents off last week's high and a cent and a half below last week's open - is getting closer to a buy or is likely to fall further".
That answer came as a resounding buy it seems with yesterday's early low in trade of 0.7523 holding firm and the AUD/USD sits this morning at 0.7549.
Now clearly that is not a resounding rally nor even a repudiation of the potential for lower levels. But when you see the carnage in the Yen and Euro, the big move in the Malaysian Ringgit and the dollar bull case there is no escaping that the Aussie dollar has hung tough.
That's even though we have Fed speakers again saying the December hike is almost a lock and the fact that the CME Group (NASDAQ:CME) December FedWatch tool shows an 85.8% chance of such a move.
So how do I explain the performance of the Aussie, Kiwi and CAD relative to almost every other currency of note on the planet?
Now it's pure supposition (isn't analysis usually) but my sense is that this post-election move is an aggressive pull forward of markets and countries that traders and investors think will be the winners and losers under Trump. So because the Aussie (Kiwi, and even CAD to a certain extent) are not at the front line as obvious victims under what market views as Trumponomics they are in a culvert. That means the rapid flow of money, re-estimation of value, and fear of loss has passed them by at the current valuations for the three major commodity bloc currencies.
That's because of what I highlighted yesterday - the Aussie is already 3 cents off last week's highs. Sure commodities are down, and at risk of further retracements, but fair value is now above the AUDUSD rate not below it.
So traders sell the easier currencies - like the Euro, Yen, Sterling and EM forex.
Looking at the charts though it's not all beer and skittles for the Aussie. It has broken it's downtrend. It must now break higher to satisfy the bulls the fall was a false break. The problem of course, is that it doesn't exactly look like one yet. Perahps we need to see a reversal in the US lift the Aussie before it can climb higher.
For the moment though while it is below 0.7600/10 it has a downside bias - or at least a consolidative one. Support remains 75 cents and then 0.7450.