The AUD/USD pair broke higher during the course of the session on Wednesday, clearing the 0.80 level. By doing so, this market looks very strong all of a sudden, and we now believe that the Australian dollar is primed to go much higher. We recognize that there is quite a bit of noise between here and 0.82, so we are a little bit hesitant to get involved quite yet. We would like to see some type of short-term pullback in order to start buying again though, as at that point in time we feel that it would represent value in what is obviously in undervalued currency pair.
Pay attention to the gold markets, as they are trying to break out to the upside. If the gold markets can get above the $1220 level, the market should continue to push the value of gold much higher. If that happens, the Australian dollar should follow the same trajectory, as it typically does. The US dollar itself seems to be falling apart, and today might have been the confirmation of a trend change in the greenback, which of course has been bought hand over fist over the last several months. The question now is whether or not the US dollar rally is completely over, which it’s a bit early to tell, but it certainly looks like that could be the case.
If we can break above the 0.82 level, we believe at that point in time that the Australian dollar will continue to go much higher over the longer term, perhaps heading to the 0.85 level next, and then the 0.90 handle. If that happens, we will more than likely see dollar weakness all around the marketplace for the longer term, and it will simply be one of these situations where we can sell US dollar retirement shows a little bit of strength. If we break back below the 0.80 level though, that would be just more confusion in this marketplace the quite frankly had seen more than enough of it recently. Trend changes are always messy, and we certainly have a mess on our hands.