The AUD/USD pair broke higher during the course of the day on Tuesday as the RBA suggested that perhaps rate hikes could be in the future, at least before any type of rate cut. The Reserve Bank of Australia suggested that the weakening Australian dollar continues to be a driver of economic growth, and as a result the Australian dollar got a little bit of a bomb. However, the 0.75 level above should continue to be resistive, offering selling opportunities going forward. At the moment though, we are willing to stand on the sidelines and wait for that opportunity as we recognize that the downtrend is very strong. However, if we can get above the 0.76 level, we feel at that point in time this market could be changing for the better.
Keep in mind that the gold markets are still fairly quiet, so we don’t have the catalyst that we like to see as the two markets tend to be rather correlated. With this, we believe that the market should eventually find sellers again, as although the RBA suggested that perhaps the rate cutting cycle may be over. Ultimately, the market should continue to be rather volatile, and we still believe that the downtrend will continue because not only does the US dollar look strong in general, quite frankly commodity markets are not strong enough to lift the Australian dollar.
If we did get some type of reversal though, it would be difficult to start buying the Aussie dollar right away. Quite frankly we would feel much more comfortable with a longer-term buy-and-hold type of signal. At that point time we would be willing to buy dips going forward as the market could enter a multi-year uptrend. In the meantime though, we would venture to say that perhaps gold markets and other industrial metals such as copper should continue to weigh upon the value of the Aussie. Also, you have to keep in mind that the Chinese economy needs to pick up in order to drive demand out of Australia as well.