AUD/USD has failed to close above the 76.4% retracement of the October to January sell-off at 0.9499. However the trend higher is strong and hedge funds are loath to short the pair with volatility is at record lows and while the RBA has a neutral bias. In fact given Australia’s comparatively compelling ‘real’ interest rates it is still a nice currency to own. The bulls will be eyeing a move to the October high of 0.9758, although it could be long slog to get there. A pullback could feasible materialise, but the key will be whether traders support dips to 0.9461 (the April 10 high).
At 11:30am we get the May trade balance and the market expects a deficit of $200 million. A bigger deficit could see the pair test 0.9461, so it promises to be an interesting session. It’s worth bearing in mind we also get RBA member Guy Debelle speaking at 21:05 AEST in London, so there is a prospect of jawboning the currency lower.
Yesterday we saw a big negative candle, with the pair trading back below the March downtrend. Shorts are clearly preferred here, with traders eyeing a closing break of the June 12 low of 1.4359. A surplus in today’s Aussie trade balance could be the trigger for this break and I feel placing stops on shorts just above the June 25 high of 1.4552 could limit losses in case of a change in trend. Tomorrow’s ECB meeting could be interesting as we could get a deeper discussion about the September Targeted Long-Term Refinancing Operations (TLTRO).
The Australian index has found buyers once again at the bottom of its recent range around the 5370 area. The bulls will be hoping to see a move to 5470 (the downtrend drawn from the May 28 high), but clearly that is not going to materialise today. A close above 5400 would be a small positive, but we will need to see a better day’s trade from the banks. Materials should see modest gains today, but the fate of the index hinges on how the banks perform.
Traders have started the month off on a positive note, with the Wall Street Cash index missing out from trading above 17,000 by 1.3 points. It seems only a matter of time before the index does move above this level given the underlying trend. In US trade tonight we get US ADP private payrolls report (expecting to see 205,000 jobs created), the New York manufacturing ISM and factory orders. Janet Yellen also speaks and dovish language could also push the index higher.