The Australian dollar rallied a bit on Wednesday to form a double-bottom pattern. Ultimately, the market has been hanging around the 0.6850 level. Looking at the start, we could rally significantly, but at this point, I think it’s only a matter of time before we see sellers come back in because this relief rally is probably just that, a relief rally.
Looking at this chart, I think we have a lot of volatility ahead of us, and it’s also possible that we see a bit of a range form. Nonetheless, I think that’s probably the “best-case scenario” for Australia at the moment, as the Australian economy is suffering at the hands of China slowing down again, or perhaps I should say locking itself down, and potential concern when it comes to the demand for certain commodities.
The interest rate in America continues to climb, but now that we’ve had a little bit of a relief rally after the Federal Reserve raised to 75 basis points, any knock on effect of positivity is probably short-lived, and we will start to focus on the diversions of interest rates again. Inflation continues to run hot in the United States, and that is going to be a major problem. Granted, Australia does have a lot of a correlation between its currency and gold, but that is probably going to go by the wayside given enough time.
Look at this chart, if we were to break down below the recent low, that would be a very ugly turn of events. At that point, we go looking to the 0.68 level, and then perhaps open up a move down to the 0.66 level. On the upside, the 0.7250 level being broken could open up the possibility of the 0.75 level being targeted. The only thing I think you can count on in the Forex market right now is the fact that there is going to be a lot of volatility, so you need to keep your position size reasonable and recognizes that we are in a very unsettled environment as so much concern is found around the world when it comes to growth, inflation, and the recessions that are almost certainly coming down the road. I will only add to positions once they prove themselves.
