Longer-term, I think we are looking at $0.60 as a potential target.
- The AUD/USD currency pair has fallen during the trading session on Friday, as we are now below the 0.64 level.
- The Australian dollar has a lot of things working against it, not the least of which is that the Reserve Bank of Australia recently hiked interest rates by just 25 basis points instead of the expected 50.
- They quoted that the large portion of the GDP in housing made it that they had to be very cautious.
The USD Is More Attractive
Because of this, it looks as if the Aussie is going to underperform in general, but on the other side of the equation, we have the Federal Reserve which of course will remain very tight. This is essentially the “perfect setup”, because the interest rate differential between the 2 currencies should continue to widen, not shrink. As long as is it is going to be the case, then it makes the US dollar much more attractive. The market breaking through the 0.64 level opens up the possibility of a move down to the 0.63 level, maybe in the 0.62 level. Longer-term, I think we are looking at $0.60 as a potential target, but I would also anticipate that there is a lot of noise between here and there.
As things stand right now, I like the idea of feeding this market at the first signs of exhaustion. The market rallying from here will have to deal with a lot of noise all the way to the 0.65 region, so I think that most traders will be looking at this from the short-term perspective and looking for signs of exhaustion that they can step on. Given enough time, it’s very likely that we continue to drop, mainly due to the fact that commodity sales are going to be miserable in an environment where the global economy is falling in strength. Looking at the recent economic numbers, it looks like we are going to continue to see negativity, and therefore it’s difficult to imagine where people were going to be piling into things like copper, which as an aside, fell apart during the day. With this being the case, the Australian dollar is going to continue to be at the mercy of global growth, or in this case, the lack of global growth, not only in Asia, but the rest of the world at this point.