The Australian dollar is still stuck in the mid US75 cents range, after getting smashed late in Asian trade on Friday.
Overnight on Friday, the currency briefly pushed back above US76 cents before traders hit the sell button, driving the Aussie to a low of 0.7536 US cents.
It subsequently found some buyers but this hourly chart from Investing.com shows the clear downtrend in recent sessions:
The latest falls mean the Aussie is now trading at its lowest level since June.
According to AxiTrader’s Greg McKenna, a key point to note is that the recent downside pressure on the Aussie comes amid broader weakness in the US dollar.
The greenback got hammered in overnight trade on Friday, with a particularly sharp move lower against the Japanese yen which saw USD/YEN fall back below 112 for the first time in a month.
Typically, the Aussie comes along for the ride and posts gains when the US dollar falls.
“That’s instructive and it supports my hypothesis that the Aussie is irrelevant to a big swathe of the market for the moment,” McKenna said.
“Unless or until it falls to a level which traders and investors see as a reasonable bet, the AUD will continue to drift.”
Yields on shorter-term US 2-year bonds also continued to edge higher on Friday night, which leaves the yield spread between US and Australian 2-years at just 3.5 basis points.
The Australian-US yield spread on benchmark 10-year treasuries has also fallen to around 20 basis points. In that environment, “even a positive growth backdrop can’t help”, McKenna said.
“You can hear the shouts of ‘why bother’ in Boston, New York, and Newport from here,” he added.
“My sense is the Aussie is still pointing lower and will fully retrace to the start of the rally which took it above 81 cents.”
“That suggests a pullback into the mid US73 cent region eventually. Then we’ll see if it represents value.”
Looking at the week ahead, there are no obvious catalysts for the Aussie domestically with a quiet schedule on the data calendar.
Markets will keep an eye on the RBA’s minutes from its November meeting tomorrow at 11:30am AEST. There’s also a speech from RBA governor Philip Lowe tomorrow evening titled “Some Evolving Questions”.
Looking abroad, the minutes from the US Fed’s most recent meeting on interest rates will be released on Wednesday night, before US markets are closed for the Thanksgiving holiday on Thursday.
Later in the week, there’s October data for manufacturing and services PMIs across the US, Europe and Japan.