Rate Cut Talk Saps Strength of the AUD
Justin Burkhardt | FXFocus.com
Australia’s economic engine has been firing on all cylinders since June of this year gaining a significant amount of traction against other major currencies. Last week the released economic reports were positive, which led some analyst to interpret this as a continuation of the bullish trend. These analyst even went as far as to state that it would be a bad move to short the AUD, but that couldn’t have been further from the truth.
Even the strong falter. As the dynamics within this global economy become more severe, the strengthening local economies find it more difficult to remain on course. The situation in Australia is that the country’s currency appears to be overvalued which impedes their ability to compete in the global market place.
The Reserve Bank of Australia (RBA) discussed interest rate cuts to today to bolster their outlook. The nation’s treasury said the Central Bank would be able to ease monetary policy IF the currency gains are hurting the economy. The end result was that interest rates remained unchanged at 3.5 percent, which caused an immediate trend reversal against other major currencies. Was this the intended outcome of the Central Banks decision in order to bring the value of the country’s currency back to a state of equilibrium?
As traders, we should constantly be stepping back to look at the bigger picture. The chart reveals a story, where has the trend been and where will it likely end up. After listening to the analyst state that the bullish trend would continue, I immediately disagreed because the chart indicated that this rally had reached its end.
The AUDUSD has been consolidating into a triangle formation since July of 2011, the pair has completed waves “a” through “d” and is moving into wave “e” now. My projection for this new move is that the pair will cross parity falling into the $0.97 range.
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Indicators On Watch for the Week Ahead
- AUD Reserve Bank Board - August Minutes (August 21)
- NZD Reserve Bank of New Zealand 2-Year Inflation Expectation (3Q) (August 21)
- NZD Credit Card Spending (YoY) (JUL) (August 21)
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