Australia | Jun 16 2006
By Greg Peel
A Dow rally of nearly 200 points was predicated by data suggesting the US economy is not currently slowing as much as some might have thought. Nevertheless ANZ currency strategists note the US dollar is under pressure again from the problem that won’t go away – current account deficit.
ANZ suggests further data due tonight will only reinforce the dollar-negative theme.
The next rate rise in the US is already factored into the market but the US dollar will still hold up somewhat before the actual FOMC meeting at the end of the month, the strategists say.
While the US dollar is weaker rather than stronger the Aussie has managed to find some friends again. Equity market rallies and gold price stabilisation have provided a spur as well. Upside stops have been triggered in the cross rates, notes ANZ, pushing the Aussie back above JPY85.
(A "stop" or "stop-loss" is a level set by traders as a "get me out if the price hits here". An upside stop would be set by a trader shorting the Aussie, and once a stop is triggered the reversing trade must be filled at the next available price. Traders have a habit of setting stops at significant chart levels, resulting in a cluster of stops at a specific price which sets off somewhat of a scramble if that level is breached.)
From a technical perspective, ANZ believes there is some scope for the correction in the Aussie to extend further should US$0.7430 be broken. The target then would be US$0.7500.
There is no domestic data until the end of this month, the strategists note. By this time the Fed will have acted.