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Australian Dollar vs US Dollar Technical Analysis
The Australian dollar has shown itself to be rather negative during the trading session after we initially tried to rally. We are now testing the 0.63 level, and ready to break down below it. If we do, then the market is likely to go much lower. Quite frankly, as I write this it looks like we are just on the precipice of having this happen. Remember that the Australian dollar is highly levered to commodities, and therefore highly levered to the global growth story. Furthermore, the Australian dollar is highly sensitive to what’s going on in China, which looks to be showing signs of a slowdown. With this being the case, and the fact that the Federal Reserve is going to stay tighter for longer, this makes quite a bit of sense where the US dollar will continue to strengthen.
Rallies at this point in time will be selling opportunities, and it now looks like the Australian dollar is going to continue to be somewhat toxic and perhaps sold off. At this point, it looks like we could go down to the 0.62 level, which of course would be a big deal. Anything below there opens up the possibility of moving down to the 0.60 level which is a large, round, psychologically significant figure, and would attract a lot of headlines. At that point, there are a lot of people that would more likely than not be willing to get involved, as it has been historically important for quite some time.
With this, I believe it is probably only a matter of time before you see buyers come in, but we need the markets to settle down and of course risk to suddenly disappear. This includes inflation risk, central-bank risk, and perhaps most volatile, geopolitical risk. In this environment, it’s difficult to imagine that geopolitical risk is going to get any better, so I anticipate that this market will in fact break down. Where it stops, that remains to be seen but I also believe that we will repeat the same pattern that we have seen for a while, meaning that any time the markets rally, you have to look at it as a potential selling opportunity and an opportunity to pick up “cheap US dollars.”
For a look at all of today’s economic events, check out our economic calendar.
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