By: DailyForex.com
The AUD/USD pair spent most of the market hours on Tuesday going back and forth, hovering around the 0.98 handle. This is essentially where were ending the session, and the resulting candle does look a bit like a hammer at this point. This of course is bullish, and I do suspect that we are going to see a bit of a bounce from this level. However, right now if I had to place a bet, I would assume that the parity level should act as significant resistance.
In fact, that is exactly what my trade idea is in this market - waiting for the bounce to complete. If we get towards the parity level, I am not going to hesitate to sell the first signs of weakness that I see, as it was significant support previously. After the move we had over the last couple weeks, there could be no doubt that the Australian dollar is most certainly on its back foot, and the economic numbers out of Australia seem to back up a lower Aussie.
Pay attention to China
The Australians supply the Chinese with a lot of their raw materials, and the fact that the Chinese economy seems to be slumping a bit certainly will weigh upon the Australian dollar overall. After all, if there is less demand for things like copper, iron, and gold, it's hard to believe that there will be a strong demand for the Australian dollar itself. On top of this, the Reserve Bank of Australia has recently suggested that perhaps they will cut interest rates even further, after the interest rate cut that we have just had.
Because of this, we are in a bit of a "perfect storm" for the Aussie at the moment, as interest rate differentials should fade away. On top of that, people will be concerned about China overall, and since you cannot play the Yuan directly, many people will use the Australian dollar as a proxy for that currency. With that in mind, I feel that rallies will come, but they should offer selling opportunities going forward.