The AUD has had a remarkable run for the past seven years, the AUD has appreciated from .48 to near parity over the past seven years. The commodity boom has been very beneficial to the Australian economy. Exports of iron and raw materials have caused the Aussie economy to boom. The global slowdown will definitely hurt demand for raw materials from the land down under due to there elasticity. This will hurt the value of the AUD which has broken the trend line and lost nearly 700 pips in the past couple of weeks. The AUDUSD has approached the fib line of 38.2 and seems to have met a little resistance. Consequently this Fib level was resistance in February of this year, and could become a support level. If the AUD bounces off the Fib level then buy the bounce. However if it goes 20 Pips past the resistance then sell the break. The bounce will be short lived because of the macroeconomic deterioration of the Australian economy. However for a short term range trader knowing the Fib level is crucial to trading your position. In conjunction with the fact that the RSI is rebounding after coming very close to 30, this information would lead technical traders to be bullish AUD.
The technical indicators all point to buy, however the long term picture is not bright. The unemployment numbers come out this evening and any one who has traded the news knows that those releases tend to be very volatile. If the Aussie economy surprisingly dumps jobs then expect the AUD to fall further. For this reason I would stay out of the trade because the technical picture looks good while the fundamental picture is in divergence. A short term trend occurred this afternoon, yet a long term reversal may be a foot. Especially if the price of oil continues to plummet, expect the USD to appreciate across the board. The demand slow down for Aussie raw materials comes from the global slow down of demand. Consumption throughout the developed world has diminished because consumable income has been allocated toward energy costs. This reallocation of consumption has forced demand for goods to decrease. On the aggregate level consumption has not dipped but on a retail level excluding food and energy it has. This information all leads to the conclusion that the world is headed for recession. If the world is headed for recession it is a sufficient condition that Australia will face an economic slowdown. The thought that the AUD could reach parity has been squashed and the recent sell off has proved this fact. Any dovish statements from the RBA could send the AUD into a tail spin. Given the fact that the interest rate is at 7.25% the RBA has a lot of room to cut in order to foster growth. Even though the RBA has a target of 2-3 percent expect the Gov Stevens to become dovish and focus on growth in the time to come.
The technical indicators all point to buy, however the long term picture is not bright. The unemployment numbers come out this evening and any one who has traded the news knows that those releases tend to be very volatile. If the Aussie economy surprisingly dumps jobs then expect the AUD to fall further. For this reason I would stay out of the trade because the technical picture looks good while the fundamental picture is in divergence. A short term trend occurred this afternoon, yet a long term reversal may be a foot. Especially if the price of oil continues to plummet, expect the USD to appreciate across the board. The demand slow down for Aussie raw materials comes from the global slow down of demand. Consumption throughout the developed world has diminished because consumable income has been allocated toward energy costs. This reallocation of consumption has forced demand for goods to decrease. On the aggregate level consumption has not dipped but on a retail level excluding food and energy it has. This information all leads to the conclusion that the world is headed for recession. If the world is headed for recession it is a sufficient condition that Australia will face an economic slowdown. The thought that the AUD could reach parity has been squashed and the recent sell off has proved this fact. Any dovish statements from the RBA could send the AUD into a tail spin. Given the fact that the interest rate is at 7.25% the RBA has a lot of room to cut in order to foster growth. Even though the RBA has a target of 2-3 percent expect the Gov Stevens to become dovish and focus on growth in the time to come.
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