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Australian Dollar Skips Up on Soft US Dollar and Positive Risk. Will it Go Higher?

Australian Dollar Skips Up on Soft US Dollar and Positive Risk. Will it Go Higher?

Daniel McCarthy, Strategist

Australian Dollar, AUD/USD, US Dollar, China, Yellen - Talking Points

  • The Australian Dollar benefitted from a ‘risk on’ environment
  • APAC equities were mostly higher, except for China with property woes
  • The inflation battle continues ahead of AU CPI.Will AUD/USD break up?

The Australian Dollar moved higher today as sentiment in markets was buoyed by positive equity earnings, a perception of easing US-Sino tensions and softer US Treasury yields. It was not all good news however, with inflation being more widely acknowledged as a problem and another Chinese property company missing a bond payment.

Facebook reported after the US close and earnings were a slight miss, but they announced a US$ 50 billion share buyback. Tesla became a trillion-dollar company after news that Hertz had ordered 100,000 vehicles (US$ 4.2 billion value). UBS saw an uptick in earnings and increased 3Q profits.

US Treasury Secretary Janet Yellen and Chinese Vice Premier Lui He had their second call today. Although both sides gave slightly different accounts of the conversation, it was universally acknowledged that the dialogue was a positive step toward smoothing over relations.

US Treasury yields were softer across the curve, although slightly more so in the front end. Gold held onto to Friday’s gains as a result. The break-evens are moving higher though, with the 2-year back above 3.10%.

The inflation debate rages on. Yesterday, Treasury Secretary Yellen backed Fed Chair Powell and the realisation that inflation is going to remain more persistent than economists and policy makers thought.

Larry Summers weighed into the debate on Twitter, saying that there was a gap between Treasury and Fed thinking and what businesses and consumers were experiencing.

RBNZ Governor Adrian Orr added, “some of the price pressures will lead to quite sustained, higher generalised prices.” The RBNZ has already started raising rates.

NZD/USD remains at the top end of the range for the week and the Australian Dollar was the best performing G-10 currency today. Positive risk sentiment and firming commodity prices helped AUD/USD ahead of tomorrows’ 3Q CPI data.

Modern Land, a Chinese property company, missed a US$ bond payment and that pulled Chinese property stocks down and it which weighed on the Hang Seng Index. The rest of Asian equities were in positive territory. Japanese equities were notably higher, with the Nikkei 225 up over 1.8% at one stage.

The Turkish Lira steadied after President Recep Tayyip Edogan backed away from demands for 10 western envoys/ambassadors to be expelled from Turkey.

Crude oil backed away from recent highs and some soft commodities are at multi year highs.

Coming up there are US new home sales data and consumer confidence numbers.

AUD/USD Technical Analysis – Hourly Chart

The AUD/USD found support in the Asian afternoon session today with a short-term ascending trend line unfolding.

A break-through the recent high of 0.75122 may open the possibility of a test of the high of 0.75465 from last week. 0.75465 could offer resistance.

On the downside, 2 previous intra-session lows at 0.74800 and 0.74720 are might provide support.

AUD/USD CHART

Chart created in TradingView

--- Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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