Running With The Bulls: How Much More Does The Aussie Dollar Have In Store?

You don't have to be a master at forex analysis to realize that the strongest of the major currencies this year has been the Australian Dollar. The bullish ways of the Aussie Dollar aren't all that surprising, at least from a fundamental standpoint. China's economic stimulus package, which totaled somewhere in the neighbored of $590 billion actually spent money that spurred economic activity, making a larger U.S. stimulus package look weak by comparison. And as the Chinese government spent money, that led to a spate of new infrastructure projects and a sharp uptick in demand for commodities, which benefited Australian commodity exporters.

Beyond that, Australia's economy has been the envy of the developed world over the past year. As titans such as the U.S., U.K., Eurozone and Japan have grappled with a host of issues ranging from imploding financial institutions to rising unemployment, Australia has just kept chugging along and that has been good news for Aussie Dollar bulls. Adding to the good news is the fact that the Reserve Bank of Australia sees no need to reduce interest rate any further, they currently reside at 3%. In fact, the forex market seems to think the chances are good the RBA will RAISE interest rates sometime in the next 12 months. The RBA has even said the chances of a rate hike are good.

All of these catalysts have led to a strongly bullish tenor in the AUD/USD pair. In early March, the pair traded around 0.63, but that probably feels like ages ago to forex traders. The pair now resides around 0.8370 and has been bumping into psychological resistance at 0.85. Given this strong move in the past six months traders might be wondering if it's too late to participate in the AUD/USD rally. The answer might be yes.

Looking at the daily chart, we see signs of a head and shoulders pattern forming and if the 0.83 level can't act as support, the bears may finally force the Aussie Dollar against its U.S. namesake. The next couple of weeks could prove critical to the Aussie Dollar's 2009 performance and the market may get some clarity on the true strength of the currency this week with Wednesday's second-quarter GDP update.

Another thing to note: Press reports are noting that Aussie-Dollar index options are showing sentiment has been a tad too bullish for an extended period of time, suggesting a pullback could be on the way. Given the veracity of the recent bull run, a little bit of a pullback might be healthy for the Aussie dollar. In addition, there has been persistent scuttlebutt that China has met its near-term commodities demand and that could provide further pressure on the Australian Dollar, at least in the near-term if the talk proves to be more than just talk.

Still, it's hard to advocate getting in the way of moving freight train and this case that freight train is the long upward trend in AUD/USD. This might be a case of buy the dips.

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