By: Christopher Lewis
AUD/USD has been bullish by all accounts over the last several months. The move higher hasn’t been the usual “everything is fine in the world” type of rally that we are used to in this currency pair. In fact, it has had a lot to do with central banks willing to add liquidity anywhere they can. The Federal Reserve promised to kill the Dollar off by the end of 2014, (I mean keep rates “exceptionally” low until then) and the Bank of Japan has expanded its bond buying programs. The Europeans are throwing Euros at everything as well as cutting rates. The Bank of England is buying bonds as well. Everywhere you look, cheap money is flowing into the markets.
The commodity markets will continue to find money entering them as the world tries to find something to store value as the central banks try to weaken their currencies. Hedge funds are doing things like buying warehouses to hold copper, and farmers are suddenly finding themselves wealthy. Everywhere you look, anything but paper seems to be rising. With this in mind, the commodity currencies should continue to rise.
Raise the Flag
The pair has recently found resistance at the 1.08 handle. While this isn’t a surprise, (The level was resistive last time we approached it) the recent action looks very much like a bullish flag. The rise was originally started at the 0.99 handle as the pair formed a triangle. The 1.04 level was the top of this triangle, and it suggested that we were going to run to the 1.12 level.
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However, the recent action with the formation of the flag suggests that we are actually going to run all the way to the 1.15 handle. While this seems a bit high, there is absolutely nothing to suggest that the Aussie is going to lose favor anytime soon. While I am not calling for this target in the next few days, a 700 pip move wouldn’t be a massive surprise from a currency that runs like a locomotive. On a daily close above both the flag top and the 1.08 resistance level, I am buying and holding onto the Aussie for the foreseeable future. I don’t see a selling opportunity at this time.