Originally published by AxiTrader
Here's my question for today.
If stocks start to slide but the US dollar is a little weaker, what does the Australian dollar do?
The answer of course is - it depends. But that doesn't help me or you, dear readers, so I'll try to do a little better than that.
First things first.
It depends on how far and how fast stocks slide. If it's just related to that SCOTUS decision to levy state sales tax on online retailers, then it's probably not too bad for the Aussie of other risk asses. But if the selling is related to concerns that Daimler's (LON:0NXX) profit warning on the back of he trade war is just the thin edge of the wedge, then the fall in stocks could accelerate and the Aussie - and other risk asses - would be extremely vulnerable.
So it depends.
But it also depends on what the US dollar did. And on that front the fact the US Dollar Index hasn't been able to close above the 95.20 level and that euro held and bounced from 1.15 again last night suggests the US dollar is having a pause in its rally.
As a result, that is alleviating further downward pressure on the AUD/USD, from the US dollar side of the cross at least.
And with that in mind, it is worth reiterating the comment I highlighted from Fed chair Jerome Powell at Sintra the other night when he said the Fed was seeing some effects of the uncertainly around the trade war on business decisions in the US. Wilbur Ross disputed it, CNBC says. But it highlights a risk that we may see some of that uncertainty start to show up in soft indicators like the PMIs, which are due tonight in flash format and then fully in early July.
Should US data start to slip then the US dollar could come under pressure. Depending on how bad other jurisdictions print though.
So to get back to my question,
The Aussie dollar remains pressured by the slip in stocks across the globe last night, the continued weakness in commodity prices, the outlook for the Australian economy and the medium-term outlook for the US dollar. For the moment though, if the euo holds above 1.15 the chance of a run towards 1.1730 grows.
And that might see EUR/AUD rally but it would also mitigate some of the weakness for the Aussie dollar. That's how the Aussie managed to have its first up day in 6 yesterday.
So this morning AUD/USD sits around 90.7378 looking on the dailies and the 4-hour charges like it is trying to bottom for the short-term,
0.7405/10 is now the short-term key to the price action. A break would open a run to 0.7425 then 0.7450. Overall though the downtrend remains intact even though the short-term technical outlook might be improving.
As long as stocks don't tank that is.