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AUD/USD Forecast: Australian Dollar Plunges

By Christopher Lewis
Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.

I’m looking for signs of exhaustion that tell me it’s time to start picking up “cheap US dollars” again.

The Australian dollar had a very tough session on Friday, breaking below the 0.68 level before finally recovering during the New York session. The Aussie dollar is highly levered to commodities, so this should not be a huge surprise as commodity markets have been taking a beating.

Commodities will continue to struggle as long as there are concerns about global growth, which is on the forefront of most traders' minds. When trading the Australian dollar you should have an idea of what the gold market is doing, right along with aluminum, iron, and other hard minerals. Furthermore, you need to have an idea what’s going on in China as they are Australia’s biggest trading partner by far. With the Chinese seemingly hell-bent on locking themselves down at the first sign of a sneeze, it’s difficult to get a real read on the Chinese economy.

The Chinese have started to stimulate their economy, by whether or not that leads to any real change remains to be seen as major centers such as Shanghai continue to get locked down on occasion. This has a major influence on the Australian economy, as exports will get hammered in that situation. Furthermore, on the other side of this equation is the Federal Reserve and its monetary policy in the United States. It appears that the US is going to continue to tighten quite aggressively, and if that’s going to be the case I suspect that the Aussie, and most other currencies for that matter, are going to continue to have problems with the greenback.

The 0.69 level in the Australian dollar has been somewhat important recently, as will be 0.70 level be if we get to that area. I like fading rallies in this pair, and have no interest in buying the Australian dollar until it breaks about the 0.7250 level, something that would take a Herculean effort. Because of this, I’m looking for signs of exhaustion that tell me it’s time to start picking up “cheap US dollars” again. The size of the candlestick on Friday does tell us that there is a certain amount of conviction to the selling pressure, and I suspect that the only thing that saved the Aussie from falling apart quite drastically would have been the fact that the weekend was coming. Monday is Independence Day in the United States so liquidity could come into play as well.

AUD/USD

Christopher Lewis
Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.

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