Despite quiet trading and limited economic data, any renewed momentum in the US dollar could bring about tests of round-number support/resistance against the euro, Japanese yen, and Australian dollar.
In what was a very quiet night of trade in the currency market, the US dollar (USD) rebounded a bit against most high-beta currencies amidst a barren economic calendar and heading into a long weekend in Japan. The only story of note was the persistent weakness in the Australian dollar (AUD), which managed to post fresh yearly lows against the Canadian dollar (CAD) and New Zealand dollar (NZD).
On the economic front, Australian new home loans rose less than expected, at 1.8% versus 2.3% forecast, but investment lending for homes actually increased to 1.5% from 0.9% the period prior. Despite the decent housing data, the Aussie continues to drift lower while still reeling from Thursday’s disappointing unemployment data.
The Australian labor market is clearly signaling that the economic boom that was led by massive Chinese resource demand is now over, and growth is likely to be markedly weaker in the foreseeable future. As a result, investors are worried that the Reserve Bank of Australia (RBA) will continue to lower rates in order to create demand, which would drive the AUDUSD exchange rate lower.
Despite the substantial depreciation in the AUDUSD over the past several months, the RBA still perceives the currency as overvalued and may target the .8500 level as an ultimate point of comfort. In the past week, AUDUSD has been able to stabilize ahead of the .9000 level, but Thursday's labor market data once again threw it for a loop. If the US dollar rebound resumes, the Aussie may be in for more selling with AUDUSD shorts eyeing a break of the .9000 level as the primary near-term target.
3 US Dollar Moves That Are Possible Today
Elsewhere, price action has been moribund with currencies essentially flat-lining for most of the night. Friday’s North American session may bring some life back to the market as traders focus on the PPI and University of Michigan consumer confidence releases. Wholesale inflation is expected to remain tame at 0.5%, and the U of M survey is forecast to improve modestly, to 85 from 84.1 the period prior.
If consumer sentiment data surprises to the upside, it could provide a modicum of support for the dollar, with USDJPY possibly running towards 99.50, EURUSD slipping back to 1.3000, and AUDUSD testing support at the .9100 level as the trading week comes to a close.
By Boris Schlossberg of BK Asset Management