The Australian dollar rallied again on Monday, reaching towards the 0.7360 level. That being said, we are still in the midst of an area that could cause some issues. After all, we had previously seen the region between 0.73 on the bottom and 0.74 cause a lot of back and forth momentum, and I think we may still have a lot of work within this general vicinity.
The Australian dollar is highly influenced by China, and we have a lot of issues when it comes to China right now and the Evergrande situation expanding out into other bond markets. If that continues to be a major issue, people will be concerned about the Chinese economy and the like, and that could have a lot to do with what happens with the Aussie going forward. Australia is rather dependent on China for much of its exports, so that is a major reason to pay attention to this. Furthermore, commodities also have a major influence which could be a bit of a counterbalance at this point, due to the fact that the Aussie is sometimes used as a proxy for various metals markets.
If we do break above the 0.70 level, it will be interesting to see how we behave right around the 200-day EMA which is just above there. I think that is more or less going to be a “trend-defining” area that people will be cognizant of, so paying close attention to how we behave in that region is going to be paramount for figuring out the longer-term trend, assuming we even get to that region. On the other hand, if we turn around a break down below the 0.73 level again, that could have the market falling to the lows again. After all, we had been in a significant pullback for a while, so it does make sense that we would have a bit of continuation.
You obviously cannot forget the influence of the US dollar, because it is half of the equation. What is interesting is that the dollar has strengthened against European currencies, while this market went straight up in the air. Whether or not there is some type of divergence long term is a completely different question, but it is all worth paying attention to.
