The AUD/USD pair rose during the session on Friday as the 1.03 level comes into offer support. The pair has sold off rather significantly lately, and as such a bounce should have been expected. This area is vital for the long-term health of the Australian dollar rally, and as such we think that there could be a bit more to the bounce.
However, if this 1.03 level gives way we could see a significant move down to the parity level, and perhaps even lower. The Chinese economy seems to be slowing down, and this will certainly have a negative effect on the Australian dollar. With slowing exports to China, the Australian economy certainly will slow as well. In fact, there are even reports that Reserve Bank of Australia members are considering easing rates which would take a huge part of the bullish story out of the Australian dollar as the interest rate differential would shrink.
Look at this chart, it looks like a pair that should be sold. On a rally from here, we would look for weak candles from which to sell. We would become convinced of the rally know if we manage to get above the 1.05 level. This is because it would wipe out all of the selling from the recent bearish attitude that we’ve seen in the marketplace.
Ironically, the gold markets are skyrocketing at the moment and this is typically bullish for the Australian dollar. However, there may be a bit of a safety trade in the gold markets as well as so many central banks are looking to ease their interest rates. Because of this, the normal correlation of gold and the Australian dollar may not quite hold up the way it normally does. This will more than likely confuse a lot of traders, and cost people more than a few dollars.
With this being said, we are looking to sell a daily close below the lows from Thursday, or a rally that shows week candles underneath the 1.05 level as we think that is the “line in the sand.”
Written by FX Empire