The Aussie dollar broke down a bit during the trading session on Tuesday to reach down below the 0.77 handle. That is an area that has been somewhat supportive as of late, but at the end of the day, the Australian dollar has been hanging about and chopping around in a relatively sloppy area.
As the Federal Reserve has a meeting going on right now, the Wednesday statement will come into play when it comes to the US dollar, which is half of the equation here. It comes down to whether or not the Federal Reserve will continue to show signs of loosening monetary policy and keep the foot on the accelerator. The Federal Reserve above all else will continue to throw liquidity into the system, as higher interest rates are simply unbearable. With that being the case, it is probably only a matter of time before the Australian dollar rallies, but at this point in time we do not have the catalyst. If we do break out to the upside, then the 0.7850 level would be the next major barrier to overcome.
To the downside, if we were to break down below the 0.76 level, we would then threaten the 200-day EMA. After that, the 0.75 level would be a major support level, so if we were to break down below there, it would break this whole trend apart, perhaps reaching down towards the 0.70 level given enough time. That could be the beginning of something rather big, but the only way I could see this happening is if we get some type of shock announcement from the Federal Reserve that suggests they are thinking about tapering. I would not hold my breath for that, so at this point it is likely that we would see more of a proclivity to rally. But if we do break down, it could be something rather sudden and eventful.
I anticipate that the Federal Reserve will continue to suggest that they will do whatever it takes to keep the liquidity flowing, and that should continue to favor the Australian dollar over the US dollar, or most currencies for that matter. Ultimately, there will be a lot of questions as to whether or not the Fed will think about tapering, but at the end of the day it is very unlikely.
