Originally published by AxiTrader
Okay.
With the US dollar's strength returning in the past 36 hours we'll now get to see how much support the Australian dollar really has at the moment, and here at 79 cents.
Iron ore has reversed a little from its recent peak and looks a little pressured as traders wait for the release of the official PMI data for China today. Copper too is off its top while the USD/JPY and EUR/USD are around 200 points from their respective low and high for the week.
Yet the Aussie is still sitting atop 79 cents. That's a solid performance all things considered.
But right now the Aussie is starting to slip below the uptrend line from the last 2 month's rise which took the Aussie to a multi-year high around 0.8060.
In many ways slipping below that trendline is now big deal - assuming that's where the AUD/USD ends up later today - because the 78 cent support is likely to remain firm in the current environment.
Indeed just last night Moody's Investor Services released its latest forecasts for G20 economic growth which it sees as holding above 3% over the course of 2017 and 2018.
It upgraded Chinese growth to 6.8% from 6.6% previously while at the same time increasing expectations for South Korea to 2.8% from 2.5%, and Japan's growth estimate from 1.1% to 1.5%.
Taken together these forecasts are bullish for Australia because it increases intrinsic support for its economy and by extension the Australian dollar.
Which is why and how the Aussie dollar traded above 80 cents. It wasn't just a weak US dollar - although that helped.
The question now, however, is how the Aussie performs in an environment where the US dollar strengthens. Readers know that this is something I have been looking for as US data flow improves.
Last week was a setback in terms of data flow. But the overnight release of Q2 GDP of 3% annualised and a strong ADP employment report has driven the Citibank economic surprise index for the US up to -21.2. That's it's best print since early May.
I'm on board with another end of year hike. But strong GDP data, if followed by a strong non-farm payrolls release this Friday is likely to change the conversation about the Fed and the chances of a December rate hike.
Closer to home though the release today of Capex data is going to be important for expectations about the path of Australian growth. There is a wide range of forecasts for the Q2 number but the net balance is an expectation it will rise 0.3% from Q1. In terms of expectations about the third read of Capex intentions for this financial year forecasts seem to centre on a number around $96 billion.
Any deviation from these numbers could cause a reaction for the Aussie.
Likewise so to could the release of the NBS manufacturing and services PMI's for China today. The previous month's prints were 51.4 and 54.5 respectively.
In summary the Aussie is under a little pressure and a move back to 78 cents wouldn't surprise. Only a break of that level would materially alter the outlook.
Have a great day's trading.