The Australian dollar has rallied again during the day on Wednesday, as we continue to see the US dollar get hammered on central-bank expectations. The Australians reported hotter than anticipated inflation numbers early in the morning, that of course has had money flowing into the Aussie. Regardless, we are right at the precipice of a major structural top, back in August. If we can break above the 0.71 level, then it is likely that we could go higher. In that scenario, I anticipate that the market could take off to the 0.72 level, possibly the 0.73 level.
Aussie Market Fundamentals
- The Australian dollar is sometimes a bit difficult to trade though, mainly due to the fact that it is heavily influenced by multiple markets.
- You need to pay attention to China, which of course is the biggest customer of Australia. Furthermore, there is a huge amount of noise when it comes did demand for various metals.
- The mining sector in Australia is massive, so that obviously has a major influence on what happens with the Aussie dollar.
Traders are now betting that the Reserve Bank of Australia will have to do more along the lines of tightening, and that of course works in favor of the Australian dollar. Ultimately, this is a situation where there is a one-two punch, in the sense that the world believes that the Federal Reserve is going to slow down its tightening, while the Reserve Bank of Australia will have to speed it up. Whether or not that’s actually true is a completely different question, but I think at this point it’s obvious that the trading public at least believes this.
Keep in mind that next week we have a Federal Reserve meeting and announcement, and they can have a major influence on where we go next. With that in mind, I think you get a situation where the markets continue to be very noisy, but we are looking a little stretched. Perhaps a short-term pullback is in the cards, but I’m not looking for some type of major meltdown at this point. I think ultimately this is a situation where we are just simply going to have to find some type of balance, which is difficult at this point in time.
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