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  • AUD/USD is trying to rally into the wind, propped up on elevated risk appetite and higher equities.
  • The US dollar is struggling to maintain a meaningful bid, but there are pages missing in the bull’s playbook for AUD.
  • Technically, 4-HR channel resistance could be a hard nut to crack.

AUD/USD is trading at 0.7166, struggling to shake off the bears as it advances some 0.34% on the day within a 4-HR bear channel, rallying sharply from the lows of 0.7109 to a high of 0.7175.

The move is a reflection of the US dollar’s inability to hold onto any meaningful ground following its recovery attempt measured by the DXY down in the mid 92 ranges. 

The dollar fell from a one-week high on Wednesday, as political wrangling over a stimulus package for the US economy halted run higher its month, so far.

There is an emphasis on the US and emerging market stocks, both for which risk appetite, positively so, and the US dollar, negatively so, are correlated in opposite ways. 

Higher equities supporting AUD

The Aussie attracts demand on sentiment for which drives the stock markets higher and today we have seen investors return to support equities in droves. 

At a high of 3,83.21 scored today, the S&P 500 SPX is once again flirting with its all-time closing high at 3,386.15, just shy of the 3,393.15 record intraday high, both for which were registered on February 19.

However, the SPX is getting a big-5 boost from Apple AAPL, Microsoft MSFT, Amazon.com AMZN and Alphabet GOOG and Facebook FB.

 

Shortly after noon, these 5 stocks were accounting for around 40% of the SPX’s rise today. And with this, small-caps, the banks and energy are lagging. Some would argue, therefore, that the surge in the indexes is not a true reflection of fundamentals and may wish to caution chasing the surge.

Cutting the pie into slices, hardly the basis for strong fundamentals

Moreover, stock splits have been announced by Apple and Tesla which have boosted demand for shares.

However, such a move prompt other companies with high-price shares such as AMNZ, GOOGL, to consider such a tact, but that is not necessarily a bullish outlook for the stock market, at least to form a fundamental standpoint.

Cutting the pizza into slices so more investors can share the same pie is not affecting the underlying value of the business, nor is it attracting investors who are concerned for anything more than technical, momentum and non-fundamental drivers. 

Meanwhile, on the data front, stronger-than-expected US Consumer Price Index numbers, briefly lifted the dollar against a basket of currencies, including the Australian dollar.

The CPI showed a rise of 0.6% last month after rebounding 0.6% in June. Excluding the volatile food and energy components, the CPI also jumped 0.6% last month. That was the largest gain since January 1991 and followed a 0.2% rise in June.

Stalemate on the US stimulus package

However, a drag on the greenback stays with the market’s focus on the US stimulus package.

US Treasury Secretary Steven Mnuchin said on Wednesday that the White House and top Democrats in Congress may not be able to reach a deal on coronavirus aid, in the fifth day without talks on the stalemate blocking relief to tens of millions of Americans.  

RBA missed its chance

Meanwhile, the Reserve Bank of Australia may have just missed its only chance this summer to talk down the Aussie in the face of inflationary headwinds.

At last week’s RBA policy meeting Governor Lowe signalled that he was fairly content with the level of the AUD.

In the statement on monetary policy the RBA commented that “The Australian dollar is now in a range that is broadly consistent with its fundamental determinants, namely the terms of trade and the differential between interest rates in Australia and rates in major advanced economies”. 

Given the grim backdrop for global growth and Australia long-standing difficulties in promoting wage inflation, analysts at Rabobank raise their concerns for relying too strongly on the RBA’s laid back approach.

The RBA has been dubbed as the most hawkish central bank in the G10 by some commentators and the coming months are likely to test the central bank’s resolve in maintaining this position. While the comments from the RBA are supportive for AUD/USD in the near-term, we see risk of a pullback below 0.70 in a 3 mth to 6 mth view.

AUD/USD levels