The AUD/USD pair attempted to rally during the session on Tuesday, but again showed weakness as it approached the 1.03 level. The fact that we formed a shooting star at the bottom of such a massively bearish move concerned me for the health of the Australian dollar going forward.
It should be stated that morning we will have the GDP numbers out of Australia, and this will continue to move the markets in one way or another. There will be a knee-jerk reaction, and it will be interesting to see how the currency reacts to whatever number comes out. If the market perceives it is worse than expected, we should see a continuation to the downside and a breaking of the bottom of Tuesday's lows. This would be a very bearish sign to me and would have me short of this pair massively.
On the other side of the coin, we could see a bounce but I will be impressed only if we can get above the 1.03 handle. This would show not only a breaking of the resistance level at 1.03, but also a breaking of the top of the shooting star from the Tuesday session which of course is in and of itself a bullish sign as well.
Australia's biggest problem is China
Chinese economic numbers have been very poor lately. As the Australians are the biggest supplier to the Chinese for their raw goods and this of course has a negative effect on the Australian dollar. Yesterday an economy is essentially a "two speed economy", as there is the mining sector which has benefited so much from the Chinese, and the rest of the Australian economy which hasn't. We are starting to see fractures in the Australian economy, and as such a downturn doesn't seem too much out of the question.
The Australian dollar is a favorite currency of traders looking for a nice yield. However, it appears that the Reserve Bank of Australia is likely to start easing again. This of course ways upon the Australian dollar and even with talk of Chinese stimulus, the Aussie simply hasn't been able to gain traction. Because of this, I am selling the Australian dollar on rallies that fail, and a break of the Tuesday lows and aiming for at least the parity level.