The Australian dollar had a slightly positive session on Thursday as the non-farm payroll announcement in the United States missed estimates. That being said, the market continues to ask questions of various levels, and the Australian dollar is likely to continue to react not only to the domestic situation but also to the Federal Reserve uncertainty.
Over the last several weeks, we've seen the Australian dollar drop against the US dollar, and that's going to be true with most currencies against the US dollar. The Australian dollar is starting to fight back, though, and I'm watching the 0.6950 level very closely because the market seems to be paying attention to it. In fact, during the trading session on Thursday, we've seen that area act as a barrier.
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Fed Uncertainty and the 0.6950 Resistance Barrier
What will be different on Friday is the fact that the Americans aren't working, so we could see a lack of liquidity cause some issues. The behavior recently has been one of hesitation, and that might be something worth paying attention to. After all, the market had been pretty certain on the downside for a while now, but on Thursday, things got a little bit bullish, which is something we haven't seen a lot of. We have seen stabilization, which, of course, is the beginning of a recovery, but we have not seen any follow-through.
What's interesting is that the follow-through on Thursday fell a bit flat as well, so that's also something to keep in mind. Again, this is why I am watching the 0.6950 level so closely, because breaking above there would be a bullish sign for the Aussie, and could also be seen in various other currency pairs.
There is a consensus now that the US dollar is overbought, but there are huge demands out there for the US dollar in multiple scenarios. Furthermore, the Australian dollar is highly sensitive to the commodity markets, so even if the US dollar struggles a bit, it's difficult to ascertain as to what the Australian dollar should do. There is risk to the downside, and that will be especially true if traders start to bet on the idea that the Federal Reserve is going to hike a couple of times between now and the end of the year, and of course, if we see risk appetite really get hammered. Those are both potential moves that could jump into the market and get the sellers really aggressive.
Aussie or Kiwi?
The alternative scenario to the potentially supportive action here, of course, will be based on the idea of what the US dollar is doing globally, and I would also keep in mind that the Australian dollar will possibly play second fiddle to the New Zealand dollar if we start to see antipodes recover. The markets are going to remain very choppy, more likely than not, but I also recognize that there is a wealth of headlines that could cross the wires to cause more volatility. Watch this area closely; it should give you an idea as to where we're going next, possibly as low as 0.67 or possibly as high as 0.70.
In the meantime, we have a situation where traders are more likely to watch and wait until we see some kind of momentum come back into the markets. The US dollar continues to be a currency that, while we saw some weakness after the jobs numbers, remains strong in general.
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