Currencies like the Australian dollar and New Zealand’s kiwi all started the trading week lower after three key reports over the weekend suggested that China may not be able to expand at a rapid clip.
CHINA DATA CONCERNS
Inflation surged to a 10-month high at 3.2% year-over-year to February. The first two months of the year Industrial Output only grew at 9.9%, well off the 10.3% pace in December and more importantly nowhere near the highs near the 12 handle. The last key data piece was retail sales having its worst release since 2004.
BULLISH AUSSIE FLOWS
You can blame China for Aussie/dollar (AUD/USD) gapping lower to start the trading week, but you can also blame the euro for the recent rally we have seen over the past 24 hours. Investors want to diversify and the Aussie dollar is becoming the beneficiary of the euro zone’s problems. Normally in a risk-on environment the euro would rally against the dollar.
RATE DIFFERENTIALS
The Reserve Bank of Australia is nowhere near as upbeat as it was last year. The RBA may also have a future total of 50 basis points in rate cuts this year. Even if they do cut that much, the interest rate differential is still heavily in the Australia’s favor.
TECHNICALS
The daily chart of the Aussie dollar seen in Figure 1 below is highlighting that price is quickly approaching both the 200-day simple moving average and the 50% retracement of the January high to March low move.
If we see a daily close above the 1.0360 level, price may quickly target the 1.0413 area. Continued strength however may be limited to 1.05. If price falls below the 1.03 level, further consolidation may target the 1.0150.
= = =
Read more trading ideas in our daily markets section here.
