The Australian dollar rallied a bit during the trading session on Wednesday to continue the overall consolidation that we have seen recently. The 0.75 level continues to be a major area of contention, as the market is going to pay attention to these big figures. Furthermore, Australia also is in the midst of lockdowns, so that does nothing to help the Aussie dollar either. Also, the 200-day EMA sits just above the 0.75 handle, so all of that suggests to me that perhaps we are going to continue to see resistance above.
To the downside, the 0.74 level has offered support over the last couple of days, and at this point I think if we break down below the 0.74 level, the market probably will fall rather hard. The 0.70 level at that point would be the target, but it does not necessarily mean that we would get there overnight. The Aussie continues to suffer at the hands of the slowdown in China that we are starting to see in the manufacturing sector, so we could see further pressure on the Aussie. Beyond that, we also have the trade spat between Australia and China, which does not help anything either.
I think the one thing you can probably count on is a lot of choppy behavior. What is also interesting though is the fact that the 50-day EMA is starting to curve towards the 200-day EMA to form the so-called “death cross”, although we obviously have not done that yet. The US dollar is threatening a breakout in the US Dollar Index, which is something that we should be paying attention to as well, because it will have a certain amount of a “knock on effect” over here. Money continues to flow into the bond market in America, driving down yields, which in and of itself could be negative. But if we start to see more and more people getting involved, then the US dollar will pick up strength due to the fact that people will be demanding that currency in order to buy bonds going forward. After that, we also have to keep in mind that the risk appetite part of the equation should not be ignored either, because the risk appetite around the world has a lot to do with whether or not people are willing to short the US dollar.
