The Australian dollar rallied to break above the top of the hammer from the Friday session on Monday, showing signs of continued strength. Furthermore, the US dollar seems to be falling against almost everything right now, so it does make sense that we would see the Aussie take advantage of that. Keep in mind that the Australian dollar is highly levered to commodity markets, which have been very strong as of late.
There are some concerns when it comes Australia itself, but quite frankly it looks as if currency traders are willing to overlook the start-and-stop behavior of the Australian government, and perhaps even the troubles that we see in China. It looks as if the market is trying to look beyond the short-term problems with COVID on the mainland, and anticipate that Australia will continue to have considerable demand from China for its commodities. If nothing else, you need to take a look at the coal markets, as there is a significant amount of price appreciation there as well. That being said, the market is going to price that into the Australian dollar as well.
The 50-day EMA underneath has offered significant support from the significant pullback, which also coincided quite nicely with the 50-day EMA. With all that being said, it makes sense that we will continue to see a bit of a floor in the market, but if we break above the 200-day EMA, then it is very likely we will go to threaten the 0.75 level above. Beyond that, we have a significant amount of resistance that extends all the way to the 0.76 level. Breaking above that allows the markets to go looking towards the 0.78 level, signifying a measured move from the “W pattern” that we have seen form in this market. I do not see any argument to short the Aussie dollar, at least not until we break down below the 0.73 level. If we were to do that, then I do think that we would probably continue towards the very bottom of the previously mentioned “W pattern.” In general, this is a market that I think is going to continue to rise with the fortunes of the US dollar, and the commodity markets rallying as well.
