The Australian dollar rallied a bit on Tuesday as we reached towards the 0.7250 level. That being said, we could go as high as the 0.73 level before running into major resistance, and at that point I think that the Aussie dollar will start to run into a bit of trouble. Yes, traders are starting to bank on Jerome Powell saving the markets again by pushing back tapering, and the narrative on Wall Street right now is all about “a delay of tapering” by the Federal Reserve.
When you look at this chart, you can see that we had broken down through multiple support levels, so I think it is only a matter of time before the market continues to go lower unless we get a major change in attitude. Ultimately, the Australian dollar is highly sensitive to commodities and the overall picture in China itself. I think at this point we are more likely than not to see a lot of noisy behavior than anything else. The Aussie has been oversold for a while, so whether or not we can bounce for a bigger move is probably a different question altogether.
When you look at this chart, you can see that the major support level was closer to the 0.70 level but had not been tested quite yet. I think that given enough time this is a market that will continue to hear a lot of noise, especially as there is a bit of a push and pull when it comes to what the Australians are going to do with their economy. Recently, they have been trying to destroy it by locking everything down, and the market has of course rewarded them with a much less valuable currency.
As we get to the Jackson Hole Symposium, it is likely that we will continue to see traders hanging on every word from Jerome Powell. If he does in fact suggest that tapering is going to happen, this is a market that will probably drop significantly. On the other hand, if he starts talking about pushing back against the timeline when it comes to tapering, then it will be dollar negative and the Australian dollar will probably be a beneficiary, at least in the short term.
