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The rise in value of the Australian Dollar over the past decade has been spectacular. If I ever invent a time machine, I’ll be going straight back to 2 April, 2001 (the date of the All Time Low of 0.4775) and purchasing as many Aussie Dollars as my broker will allow!
But the Aussie Dollar hasn’t made any gains since July, 2011, prompting traders to wonder whether or not the currency’s best days are behind it. On top of this, we’ve heard reports that the mining boom is over, the recent trade deficit was surprisingly negative and the RBA has lowered interest rates (and may do so again).
Let’s take a look at the recent market action of the Australian Dollar as at Wednesday, October 10th, in Chart 1 below. Chart 1
click to enlarge
The Aussie Dollar was sold down from its 27 July, 2011 high of 1.1080 to as low as 0.9386 in October, 2011. Since then it has rallied back above parity and at time of writing (midday, Wednesday, 10 October, 2012), the Aussie Dollar is trading at just below $US1.0200.
My opinion is that the Aussie Dollar has not done its dash – far from it. I believe the Aussie actually still has further to go. As a trader, however, I cannot afford to get locked in to a forecast. I need to be prepared for all three possible outcomes: more upside, more downside or more sideways movement.
In Chart 2 below illustrates that the Australian Dollar is still sitting comfortably above its previous All-Time-High of 0.9849, set on 15 July, 2008.
Chart 2
click to enlarge
Not only is still sitting above the old high (and above the psychological 1.0000 level, or parity), it has now made four attempts to break below this old top and failed each time. This is not the sign of a currency that has “done its dash”.
In order to be prepared, however, I would be watching the June, 2012 and October, 2011 lows. If these are broken, then all bullish bets are off for awhile.
Finally, let’s take a look at the recent bull market on Gold (GC-Spotv) in Chart 3 below, for a comparison. Chart 3
click to enlarge
Those of you who have ProfitSource or other charting software may like to open this chart in ‘WalkThru’ mode and study the market around the May, 2006 top and again in March, 2008.
May, 2006 looked like a spike top and many questioned at the time whether Gold had done its dash. Gold wandered sideways for about a year-and-a-half before breaking above this top and continuing on its merry way.
Similarly, in March, 2008, Gold made another spike top before falling back to around the level of its 2006 top. This also triggered questions as to whether the Gold rush was over. Again, about a year-and-a-half later, Gold resumed its bull run.
It has now been just over a year since the Australian Dollar made its high of 1.1080 in July, 2011. Since then, the Aussie has made four attempts to break back below its 2008 high and has failed, rallying back above parity each time.
If the current run of negative news doesn’t push the Aussie Dollar back below its June, 2012 low of 0.9579, then it may well replicate Gold and head into higher highs, possibly by the end of the year.
Be Prepared!
Mathew Barnes
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