The Australian dollar rallied quite significantly on Friday as Jerome Powell spoke from the Jackson Hole Virtual Symposium. As he was a bit more dovish than some of the other members of the FOMC during the last week, it does suggest that perhaps the Federal Reserve will continue to be very accommodative, and the US dollar will probably remain somewhat weak.
The Australian dollar then shot straight up in the air to reach to the 0.73 level, an area I have talked about repeatedly. Now we begin to ask serious questions about this trend, because this is an area that could cause a lot of trouble. If we were to break out above here and clear the 0.74 level, at that point I would anticipate that the Australian dollar should end up being very bullish and entering a longer-term bull run. That being said, we have a lot of work to do over the next couple of days, but Friday was certainly a good sign for those who are bullish of the Aussie. However, there are a lot of things to worry about when it comes to that currency and economy as well.
After all, Australia is without a doubt one of the most draconian governments when it comes to lockdowns, and that will do no good for the Aussie economy. Furthermore, the Chinese mainland economic numbers have been very poor, and if that continues to be an issue it will more than likely weigh upon the Aussie as well, because the main trading partner of Australia is China. If there is less demand for commodities coming out of the mainland, it stands to reason that there will be less demand for those very same Australian dollars used to buy them.
Pay attention to the bond market as well, as higher rates in the USA could make the US dollar bit more attractive and put more pressure on this market. We did not reach the massive support at the 0.70 level, and that is something that should be paid close attention to, as the market does tend to like to retest these areas. I think the next couple of days will be crucial and the Monday candlestick should give us quite a bit more clarity as to where we go next.
