I’ve been out of the office for the back end of the week so my observations are more ex-poste than normal. Sometimes that’s a good thing because we can always write history perfectly but at other times you miss the nuances that you gain when you are sitting in the midst of what’s going on.
But I think my take would be that it is not Greece, or now concerns about italy and Italian Banks, that is driving the weakness in asset markets but a creeping realisation that the global economy is in strife. Nouriel Roubini put up a good piece at Project Syndicate earlier in the week about the Stalling of the global economy. I think this is what is weighing on markets and while the Aussie’s performance is spectacular in this context and with regard to history, it is being – ever so slighthly, sucked and biased lower by the macro-atmospherics of the globe.
To-wit the ECRI weekly leading index was down again for the 9th week in a row falling to 2.9 from 3.6 last week. The US economy is certainly stallling.
Which brings me back to the Aussie and the fact that it has held in pretty well all things considered. Largely its because it has been rerated by global investors for the minute, largely also because this is not yet a full blown risk off event and largely because the volatility has pushed a lot of speculative capital to the sidelines – so there are less positions to cut.
The chart below shows just how solid the 1.0440/80 region has been for a while now. The Aussie, in a technical sense, is wedging itself into some sort of break out but we have to respect the range until it breaks. 
The key remains that the atmospherics for a stronger AUD/USD are slipping away with the strength of the global economy and while the data pulses around the world continue to fall (that is data weaker than market forecasts) then the bias remains for a more toward (finally) important support at 1.0350ish and 1.0194 (trendline)/1.0205 (fibo) region. We’ll see how it looks then.
Importantly the USD has stopped falling and given low interest rates it is now a funding currency and it is doing what funding currencies tend to do as things become a little more risky – it is rallying. Equally the Euro is falling in its own right. I still reckon it’s only worth (1.00 – 1.10) so it has some way to go – EVENTUALLY.
As you can see in the above chart the US Dollar index is trying to rally and sustainably break its 1 year downtrend. We’ll see how this develops but my feeling is that this rally has got some time and legs in it.
So overall the Aussie remains under pressure with a bias lower and a break of 1.0440/50 support seems a high probability. A move to 1.0350 and then 1.02 seems on the cards. If the lower level breaks then we are headed back toward the high 90’s. This isn’t a forecast just the way the 5 drivers are shaping up at the moment – so the probability is rising.