AUD/USD is up 1.3% this week so far, the most since the last week of January
This comes despite aussie buyers failing to hold a move above 0.7200 once again. The highs today touched 0.7216 earlier in the session as the dollar weakened but price has since moved lower and dips back under the 0.7200 handle.
And while the pair may be set for its biggest weekly gain since the start of the year, the failure to hold a move above 0.7200 is rather worrying at this point. The pair has gained this week on the back of improved US-China trade rhetoric on Wednesday, and better-than-expected Australian jobs report as well as a weaker US CPI report yesterday.
But has that really changed the macro picture? In short, it hasn’t.
Renewed US-China trade talks only serves as a good sign in that tariffs are being postponed but in reality those talks are very, very unlikely to generate any form of meaningful solution to the trade dispute between the two nations.
Meanwhile, the RBA isn’t going to be able to do anything with that solid labour market report with wages still stagnant and inflation currently flagging. Not to mention the issue with household debt still around and potential risks to the housing market.
And lastly, the US CPI report yesterday isn’t going to derail the Fed from hiking rates at the end of this month and it’s not a major dent to hopes of a fourth rate hike this year in December either.
However, one thing working in favour of the aussie is a consideration for stretched positioning.
That may be a consideration for further retracements in the pair but I would expect any rallies to be sold into. And especially more so if the 0.7200 handle fails to hold up.
But the more important focus for the pair is actually how will the dollar perform in the coming sessions with key technical levels being called into question. The 100-day MA in the dollar index is the key level that is being tested now and would represent a vital change/hold in the bullish momentum of the greenback since mid-April.