How can the Aussie dollar be a poster child for reflation trade if net exports in Australia continue to fall? Traders are asking themselves that question in a serious way today after a huge rise in the Australian trade deficit overnight.
The pair trades in the lower third of recent ranges and with the market overwhelming long of AUD versus the dollar and crosses like AUD/JPY, support in the 0.7825/0.7790 area looks like it could come under pressure in the days ahead.
Short-term moving averages are spooled up with oscillators in neutral territory. This suggests a directional move is not far away. If data suggests a continuation of the global reflation trade, the AUD should benefit. If the data lags, then a further shakeout is to be expected. Given market positioning, I favor the shake-out scenario.
