The Australian dollar initially tried to rally on Friday but gave bank gains as the inflation numbers in the United States came out much hotter than anticipated. At this point, it looks as if the Australian dollar is ready to continue going lower, perhaps testing the 0.70 level. The 0.70 level is an area that a lot of people will pay close attention to, as it is a large, round, psychologically significant figure.
If we were to break down below that level, then it’s likely that we could go looking to the 0.69 level, where we had bounced from previously. If we break down below there, then we could go even further. Ultimately, I do think that the Australian dollar will continue to be a bit soft, due to the fact that we are starting to see a lot of concerns when it comes to overall global growth, and the Chinese economy itself. That being said, the market is likely to continue to see a lot of volatility, because the Australian dollar is tied to some commodities that are starting to show signs of strength.
It’s also worth noting that the 50-day EMA and the 200-day EMA indicators have caused quite a bit of noise, and it makes sense that we would see a pullback from there. If the market were to turn around, I think we would need to take out the 200-day EMA in order to go higher. That would essentially be breaking above the 0.7250 level, something that looks a little unlikely at this point. That being said, you should also pay attention to the interest rates in the United States, because they continue to climb, and that’s obviously going to be a very bullish influence on the greenback.
If we get a “risk-off” type of situation, it’s likely that we will continue to see money running into the US dollar, as per usual due to the longer-term correlations. Unless the Federal Reserve decides to change its overall attitude, I think you have to look at rallies with a certain amount of suspicion and jump on signs of exhaustion every time you get the opportunity. The pair will more likely than not continue to be choppy, so keep that in mind when putting money to work.
