Originally published by AxiTrader
With a range of just 35 points in the first 24 hours of trading this week the Australian dollar lagged the gains seen in the bigger pairs as the catalysts for further US dollar strength seemed to be lacking as traders instead focused on the Mueller investigation and the race to be the next Fed chair.
That's left the Aussie dollar higher this morning but still in the mid 0.7680 region.
But while it would be easy to say the performance of the AUD/USD has been poor these last 26 hours or so I take a slightly different bent insofar as it's my sense the Aussie actually did really well yesterday when metals and iron ore were again under intense pressure on Shanghai futures markets.
To me that continues to set up the chance of a rally to 77 cents and then into the 0.7720/30 region if official PMI data from China today is positive on the outlook for growth.
But as I highlighted yesterday, in the absence of a full retreat by the US dollar, it is positioning, and just how long speculative traders are right now, that will continue to act as a handbrake on any rally back into the low to mid 77's.
Medium term the drivers of the Aussie dollar are pointing lower.
Iron ore has collapsed to $60 a tonne again, that's the lowest level in 4 months. Likewise, the AUD/USD 2-year bond spread has collapsed to just 24.93 points which is the lowest in years.
Certainly, global growth is providing a positive backdrop for the Aussie. But if that is not translating into stronger commodity prices for Australia's export basket - as it's not at the moment - then the transmission mechanism between global growth and a higher AUD/USD is broken.
It again reinforces that the chances are high that the Aussie is going to "do a kiwi" and make a full round trip to where the recent run above 81 cents started. That level, in the mid 73 cent region, is now my rhetorical target in the absence of the only thing that can probably derail such a move - a weaker US dollar.
Looking at the charts then and daily and four-hour charts both suggest a move back toward 0.7720/30 a break of 30 might even see a run toward my fast moving average and mid-Bollinger Band, around 0.7780. But that would be very hard resistance to break.
This is actually quite a nice set up for a reversal within an overall down more given the AUD/USD pulled up just below the 61.8% retracement level of the rally from the mid 73 cent region to above 81 cents last Friday night.
The downtrend can't recommence unless or until that low - at 0.7625 - is taken out.
Have a great day's trading.