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After a somewhat frightening sell off in the second half of 2008, the Australian Dollar has virtually done nothing but rise in the eighteen months since its October 2008 lows.
When we talk about a currency rising in value, we are comparing it to the value of other currencies. For example in ProfitSource, the chart FXADUS values the Australian Dollar (AD) against the US Dollar (US). So if the price on the FXADUS reads 0.92, it means one Australian Dollar is worth 92 US cents.
As I look across charts of the Australian Dollar against different currencies like the Euro, the Pound, the Yen and the Swiss Franc, I am seeing a strong bullish move in the Australian Dollar – but also some potential upcoming resistance.
Let’s take a look at some individual charts. In Chart 1 below, we will look at the Australian Dollar against the US Dollar (FXADUS in ProfitSource).
Chart 1
click to enlarge
Earlier this year I wrote an article on repeating ranges in the Australian Dollar and noted that the current highs around the 93 cent level came out on a repeat of a previous range. I also noted that the market had repeated this range very quickly and that perhaps some time needed to elapse before the next move. I was looking for the Australian Dollar to retrace to the downside or at least go sideways – despite the strong fundamentals and the rising interest rates.
You can see in Chart 1 above that despite all the interest rate rises, the Australian Dollar is as yet unable to break through this key level. In fact, Tuesday’s interest rate increase saw a large fall in the Australian Dollar.
In Chart 2 below (FXADSF in ProfitSource) we can see that the Australian Dollar has reached parity – with the Swiss Franc. This is great news for me, as I am travelling to Switzerland in July!
Chart 2
click to enlarge
While the Australian Dollar has not entered a sideways phase like it has against the US Dollar in Chart 1, you can see the market is approaching a series of old tops around the magic “1” level. Obviously parity (one for one) is an important psychological level and it will be interesting to see how the market reacts this time round.
In Chart 3 below (FXADBP in ProfitSource), we can see that the Australian Dollar is trading at record high levels against the British Pound, but has also entered a sideways phase.
Chart 3
click to enlarge
As you can see from the chart, the market reached the 200% milestone from a Double Bottom in March but hasn’t been able to go any further – yet. The current monthly swing range is also around 50% of the size of the first monthly range up from the October 2008 low.
These three charts all show the tremendous bullish move in the Australian Dollar, but they also show some potential resistance. Now I’ve been trading long enough to know that not all resistance levels hold the market every time, however they are more likely to hold at times when the market is due for a rest.
Our seemingly strong economy and consistently rising interest rates have not been enough to push the Australian Dollar higher against the US Dollar or the Pound in recent months and it will be interesting to see how the next stage of market action unfolds.
Needless to say, as a traveller overseas I am VERY grateful for the strong Australian Dollar! While it may go higher by the end of the year, I am travelling in July and have therefore locked in these exchange rates at what I believe are great prices.
Of course, time will tell!
Be Prepared!
Mathew Barnes
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