Aussie bounces as risk appetite returns

There was some hope for the Australian dollar on Monday morning, as US dollar weakness abated and risk appetite returned to the markets.

A bout of risk appetite, caused by strong US jobs numbers and a lessening of concerns about Greece and Portugal, meant that the Australian dollar has been able to stage a small rebound against its US equivalent.

However, it does look as if the longer term trend remains in effect. Friday’s good non-farm payrolls reading is broadly positive for risk assets, but in the case of the AUD/USD currency cross the US dollar is coming out on top. The US economy is showing signs of strength, and this is tempting investors back towards the greenback, while others desert the Aussie as a result of fears about weakening growth in China.

There now seems a very real possibility that the Aussie will slip below the 90 cents level against the US dollar for the first time since August 2010. Having broken through major support around 95/96 cents, the currency pair has not stopped. The next line would be in the region of 87 cents, but that is still a long way off.

Federal Reserve minutes due for release later this week might err on the dovish side, which may well take some of the strength out of the US dollar; but we will need to see a firm recovery in AUD/USD in order to declare the current downtrend at an end.


Spot FX AUD/USD chart

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