The AUD/USD pair attempted to rally during the session on Tuesday, but was beat back once we got above the 1.02 level. This level is important as it was the bottom of a larger consolidation area, and one has to think now that the pair is very vulnerable to the downside. This would make a lot of sense, as the Chinese economy seems to be cooling off and the Australian economy is so heavily tied to it.
The Reserve Bank of Australia is expected to cut rates at least once, if not twice between now and spring, and as such this should continue to weigh upon the value of the Aussie dollar. Also, there are concerns about the Australian housing market, and as such there could be trouble in that sector. Because of this, we feel that the Australian dollar is probably the weakest of the commodity currencies at the moment, and as such actually prefer avoiding it when markets are good as well. When the market start to rise in value overall, and risk appetite continues to gain, we are actually more interested in the New Zealand dollar, and the Canadian dollar.
1.02
The 1.02 level is in fact a very important area, but it should be noted that it is a zone, and not a direct line. Once we break down below the recent lows over the past three days, I personally feel that we will continue to track lower down to the parity level at least. Once we reach parity, there will more than likely be a bounce just based upon the large round number aspect of the psychology in that particular area, but at the end of the day it has been sliced through several times, and should continue to be sliced through.
Because of the Chinese economy slowing down, other global markets starting to look week, and the rate cuts that seem to be ready to happen, I am shorting this pair at the 1.0150 level. As for buying this pair, I would have to see a rise above the 1.03 handle to be comfortable that it was going to start bouncing back up to 1.06 or so.