The Australian dollar pulled back a bit during the trading session on Monday to reach down towards the 0.77 level before turning around again. This is a market that will continue to move mainly based on what is going on with the US dollar, and the massive amount of stimulus coming out the United States. Granted, it is only a matter of time before we have to get a pullback in order to build up the necessary momentum, but at the end of the day we are very much in an uptrend and that has not changed.
The shape of the candlestick is somewhat like a hammer, but that does not necessarily mean that we cannot go lower. I believe that there is even more support near the 0.75 handle, especially with the 50-day EMA sitting just below it. I think any move towards that level will probably attract a certain amount of attention, thereby allowing people to get involved based on finding some type of value. Remember, this trend has been very strong for some time, and the fact that we got a bit overstretched is something that happens from time to time, but not something to worry about.
Remember that the Australian dollar is highly levered to the commodity markets in general, and as we have a massive amount of stimulus coming out the United States and other central banks around the world, the idea is that people will be looking to buy “things” in order to take advantage of the reflation trade, as well as currency devaluation from whatever country they happen to be in. The biggest driver will be the US dollar, due to the fact that most commodities are priced in that currency. We are probably looking to go towards the 0.80 level given enough time. That does not mean we will get there overnight, but it does mean that we will continue to find buyers on dips, as we see so much in the way of value hunting out there and the idea of inflation possibly even pushing up gold as well, which would also help the Aussie. Either way, the Australian dollar is highly levered to our rising over the longer term, and that is not going to change anytime soon.
