The AUD/USD pair has a difficult role to play these days. The Wednesday session saw this pair fall straight down, and even come close to testing the lows form a couple of sessions back. This pair is a proxy for all things China related.
The pair is also a big pair for traders to use in order to express their thoughts on global risk. With this in mind, the Aussie certainly has its work cut out for it.
The candle is closing at the lows, and the action in most commodity markets was horrible for the session. This suggests that we probably have continuation for the session on Thursday, and that the “risk off” trade is still going to be in vogue. This should continue to work against the Aussie as the Dollar is king at the moment. Nobody seems to want to sell the Dollar, and while you could make a case of the Aussie being undervalued at this point, the fact is that you would be better off buying it against another currency as the US dollar is simply far too strong at this point.
The markets are being influenced by the debt crisis as the European Union is the largest economic block on the planet. The slowdown there will certainly be felt around the world, and the Aussies will find that the Chinese don’t need as many of their raw materials. This will continue to weaken the Aussie, which is already expected to be affected by a 25 bps rate cut in the next month or so. In this environment, the Aussie doesn’t stand a chance.
The market will certainly have pops in it as hope springs eternal with some people, but the move has been far too strong for us to go against it, and we can only assume that the move is the “real deal” at this point. Simply put, we cannot buy the Aussie under these circumstances, and will sell rallies as they come. Selling of a fresh low is also a strategy that we will use in the coming weeks.
Written by FX Empire