Having been helped by supportive comments from key Federal Reserve officials Yellen and Dudley, as well as other central bankers during the week, the market has jumped on the risk on trade in Thursday's session, putting away the anxiety markets experienced at the beginning of the week.
Rumors Helping Risk Sentiment Towards AUD
Adding to that now is the rumor mill where there are expectations that Chinese first quarter GDP data - set for release in the upcoming Asian session - will surprise to the upside. Another rumor making the rounds is that the People's Bank of China will cut its reserve ratio requirement in the near-term.
Both are helpful towards risk sentiment. One can help build the case that China's lending will be a soft one while the other signals that there is further easing of policy the Chinese authorities also a positive for economic growth.
As a result the AUD and NZD have surged higher against, not only against the USD but also the GBP - which with its higher bond yields could have been a destination for any outflows from carry trade in those currencies - and the EUR.
I had argued previously that if we continue to see concerns around China as well as weakness in the Australian economy that this pair might have a chance to extend its gains since forming a rounded double bottom during January and February.
For a technical analysis of this pair see: GBP/AUD - Trading at A Range Support, Attempting to Top Off
However the opposite also apples, that if Chinese growth is better-than-expected and Australia shows its economy improving that the pair could head back south as those interested in carry trade put on more shorts in the pair.
Fundamentals Help Shift Towards AUD
Better-than-expected Chinese a loans data overnight as well as the blowout employment report from Australia has certainly undercut the concern around growth in both economies. The resurgence of equities following the slide earlier in the week has help general risk sentiment and the UK had a negative fundamental report as its February trade deficits widened more than expected.
Will AUD and NZD Gather Steam Against EUR as Well
If the theme of Chinese and Australian growth being better-than-expected and thereby a move towards carry trade in the Asian Pacific higher yielders gains further momentum, we could see Australian and New Zealand dollars pressing their advantage against the euro as well.
Let's see what the Chinese GDP as well as comments from burning key hold for us tomorrow as they could set the tone not only for the end of this weeks trading but moving into next week. Of training Outlook for sentiment while at the same time that pressures on Europe remain would help the fundamental bias for the downside risk here.
We will go over all the key developments and themes from this week in our Friday Market Intelligence Briefing which is open to the general public.
Nick Nasad is a macro economist, market analyst, and educator; and one of the main contributors to FXTimes.com - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.
Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.