The AUD/USD pair has been one that has been fairly straightforward lately: Simply buy on the dips. Of course, you would have had to been willing to go against a nasty fall over the month of May, and simply let the trade do its thing.
The AUD/USD is a great proxy for the S&P500 and vice versa. The stock markets on the whole have done quite a bit to reclaim the losses in May to come back to previous levels. The Aussie has of course done the same as well. While the AUD/USD pair isn’t quite there yet, the 1.04 level seems to be on everyone’s mind at this point.
The action has been pretty explosive, and as a result a lot of people will have missed this rally, myself included. The market really hasn’t given us much of a chance to join in, and this will often concern me as the pullbacks can rapidly turn into meltdowns if everyone doesn’t get what they want.
The Federal Reserve
Ben Bernanke only knows one thing: Weaken the US dollar. Because of this, the market seems to be shorting Dollars in general as we get closer and closer to the Fed announcement later today. The Aussie is the perfect currency to buy against the Dollar if this in fact what the Fed does, as the commodity markets will generally get a boost when the Dollar weakens. This is especially true when it comes to gold. The Aussie tends to follow gold very closely, and as a result they both will gain if the Fed does in fact ease.
However, there is always the possibility that they don’t. In fact, a lot of people are saying they may not. I am in this camp, but only confident enough to say it – not place the counter-easing trade beforehand. Because of this, I am flat of this market at the moment.
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However, the session should set up as a binary equation: Buy the Aussie if they ease, and especially if it is heavy-handed. If they don’t this pair should fall. I should also point out that if they do ease – there are going to be questions soon afterwards. Any Dollar weakness could be short-lived once people start asking WHY the easing is necessary.