- The Australian dollar has gone back and forth during the trading session on Thursday.
- At this point, it looks very much like a market that is trying to determine whether or not it can continue its overall uptrend, mainly due to the fact that we have seen such an explosive move.
I think it does make a certain amount of sense that this is a pair that may struggle. It has gained about 6% in the last 30 days and that of course makes quite a bit of sense. Ultimately, I think you have to look at this through the prism of whether or not the US dollar falls.
I think at this point in time, you have the Reserve Bank of Australia likely to be hawkish for the upcoming several months and it did recently just raise rates to 3.8%, which caught the market a little off guard.
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Interest Rate Differentials and Commodity Support
Further hikes to 4.15% or even 4.45% are being discussed for later this year. The first time since 2017 you see the Australian policy rates have exceeded the United States rates and that makes it a bit of a carry trade.
Furthermore, you also have commodities around the world taking off and robust demand for iron ore, copper, and lithium driven by a steady in recovery from Chinese infrastructure is providing a bit of a solid floor for the currency.
I like buying dips and I think somewhere near the 0.69 level we have the hard floor for this pair at the moment. The core PCE price index numbers coming on Friday could have a little bit of influence, but ultimately, I still favor the upside here.
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