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The Aussie Dollar has been in a strong downtrend since October 2013 against the US Dollar, losing over 1,000 pips by the end of January this year. This decline coincided with the lower commodity prices for some of Australia´s exports including iron ore and coking coal as well as below-trend growth attributable to fiscal restraint and lower mining and non-mining investment. Traders also increased their short-positions in response to several comments from RBA Governor Glenn Stevens and other policy makers who aggressively spoke about the ´uncomfortably high´ value of the currency. When these factors were combined with the reduction of Quantitative Easing in the US and the expected appreciation of the Greenback, a strong decline in the Aussie dollar was inevitable.
There has, however, been a recent bullish rally in the last few days that coincided with the latest RBA interest rate decision. Policy makers left the Cash Rate unchanged at 0.25%, but the tone of the accompanying statement suggested the possible end of the period of interest rate cuts. This led to the current break of the downtrend line that we are now seeing, pointing to a possible start of a new uptrend. However, I would be cautious about any aggressive buying right now, since the candles that have actually penetrated the trend line have been weak thus far.
I would wait for a pullback to test the broken trend line and a subsequent bullish U-turn to confirm the start of an uptrend. Until then, the strength of the downtrend line as well as the fairly weak economic factors for Australia give a continued bearish bias in favour of the US Dollar.
There has, however, been a recent bullish rally in the last few days that coincided with the latest RBA interest rate decision. Policy makers left the Cash Rate unchanged at 0.25%, but the tone of the accompanying statement suggested the possible end of the period of interest rate cuts. This led to the current break of the downtrend line that we are now seeing, pointing to a possible start of a new uptrend. However, I would be cautious about any aggressive buying right now, since the candles that have actually penetrated the trend line have been weak thus far.
I would wait for a pullback to test the broken trend line and a subsequent bullish U-turn to confirm the start of an uptrend. Until then, the strength of the downtrend line as well as the fairly weak economic factors for Australia give a continued bearish bias in favour of the US Dollar.
