The AUD/USD pair fell hard on a Wednesday session that saw plenty of risk aversion in the marketplace. The pair is one of the favorite ways for traders to express their risk appetite, as the Aussie is so highly correlated to the commodity space, and to exporting to China.
The pair is without a doubt one of the most shorted lately, and with the Chinese looking to slowdown going forward, this could continue. We have seen bearish flag shape above the 1.02 handle, and as a result I have been looking to sell below the 1.02 level. As I have been short, I expected the parity level to perhaps bring in some kind of support, and it looks like at the end of the Wednesday session there are some slight signs of just that exact thing happening.
The Reserve Bank of Australia is also said to be mulling further rate cuts, and this will continue to etch away at the swap in this pair, which of course is one of the biggest advantages to buying this pair. If the RBA cuts again, this will counterbalance some of the expectations of easing out of the Federal Reserve in the United States as well.
Parity, then lower.
I have been looking for parity, and at this point in time I am happy enough. However, the flag from before suggest a move down to the 0.96 level, and with the problems in Europe seemingly ready to get worse, there is a real chance that this pair reaches that level. Because of this, I am very leery of buying the Aussie until we are above the 1.02 level consistently.
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The parity level should produce a reaction though. Because of this I am looking to sell rallies on the 4 hour chart at this point. The 1.01 level and the 1.02 both could produce selling opportunities, and I will not hesitate to sell at this point. The continued pressure on the Euro will also push money into the US dollar, and this in turn will also have an effect on this pair to the downside.