Simit Patel

A particularly noteworthy currency for forex traders of late is the Australian dollar, which has been on a massive tear, soaring to new all-time highs against the US dollar. The monthly chart of AUDUSD, featured below, illustrates: it shows AUD rising against USD for 9 out of the past 11 months, making an increase of over 24% since June of 2010.



Technically, we see strong support at 9882, the swing high imprinted in the market's psychology after tumbling down since it reached that level in July of 2008. The hammer on the March 2008 candle confirms that level is still a point that draws traders in, and is now acting as a support zone.

We also see a price channel going back to the start of 2009. The channel gives us much room to the upside, over 1.16 on the current monthly candle. This sets up a trade opportunity for traders expecting the .9882 level to hold, and for AUDUSD to continue progressing upwards in this channel.

Fundamentally, AUD benefits from the overall trend of capital strength in the Asian economies, of which China is the epicenter. However, the primary driver of AUD strength may be US dollar weakness, and the Federal Reserve's interest in pursuing weak dollar policies. In terms of arguments that a weaker Australian dollar is likely, the case for a credit-induced housing bubble in Australia is one of the most common arguments. Australian economist Steve Keen has eloquently made the case on his blog. Personally, I do agree this is a potential cause for concern, though in light of all the global chaos, I am not sure if it is persuasive enough -- or if the downturn will come any time soon. At the very least, I would need to see some bearish trendlines form before considering entering a short AUD position.

What do you think? Feel free to share your questions and opinions in the comments section below.

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golpster

As Simit has mentioned, Australian strength is pulled along by the demands of China etc, Coal, Gold, Iron Ore. Fundamentally we are stronger because the USD is weaker. We have the highest interest rate in the G20.

That's my two cents.
Have a good weekend all.

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velaepavio

Hi Simit,

This is an issue of interest of my personal wealth.

I live in Australia and since moved here from Brazil in 2006 I am amazed how resilient this economy is.

Practically there was no crises here. Everything seams "normal". House prices corrected a bit in the second half of 2008 after a massive increase in 2007/06 and indeed continued to grow in 2009 and 2010 a bit.

I think the main issue is not the housing bubble in Australia. As long as the unemployment rate in Australia is low and interest rates are low (4.75%... even is relatively high compared to other countries) the houses here will continue to go higher.

The thing you have to look at is CHINA. Not Australia.

China is the # 1 trade partner with Australia, followed by Japan. So the reasoning is pretty simple.

China Well = Australia Well

As long as the China keep going the AUD is going to the moon.

Glen Stevens, governor of the RBA (Reserve Bank of Australia) is very hawkish compared to all other OECD central bankers. This is one of the reasons AUDUSD is a very profitable carry trade, as well as the AUDJPY.

You know well the case for the bubble that Steve Keen explains well. Since 1990 the household debt, mainly real estate, grew 14% per year, while house prices grew 7% and income 4%.

So today families are stresses scrambling to pay their mortgages. Until they have their jobs, mainly sustained by the mining Industry Ok... otherwise it is going to get ugly.

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Tekmnd

What happens to the AUD if China has a set back? I've read that the housing bubble in China is worse than the US was before the crash. Inflation certainly is an issue there as they have raised rates 4 times now in 6 months.

Cheers
Tek

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larryfolson

Ride that Wave Cowboy!!

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forexer

When my pal flies back from China this sunday i'll have a chat with him about the situation there. He's extremely well read about Chinese politics and told me many times that it's politics and not economics that should be in focus for the deep thinker. Well hundreds of thousands blocks of built but unoccupied units speaks for itself. Yes, its a huge bubble. What's going to be the spark that will cause that snowball effect? Interest rates? The Yuan? You cannot blame China for their bubble totally. They have implemented capital inflow controls but hot money just keeps flooding their markets... thanks to wallstreet.

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velaepavio

I posted about this here in this thread Very good program from Australian TV about the situation of real estate in China.

Cheers

Vela

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hektor

Hey do you believe that the budget cuts that finally were agreed upon in the congress would boost the dollar, at least for a correction! I wonder if this is would be the catalysis!

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Tekmnd

Hi Vela

That was a great link! Wow was that weird stuff.



Here is the vid on youtube-



Cheers
Tek

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TheRagsToRichesStory

OMG what a mess - quite disturbing really. How long before China implodes?

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