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The Australian dollar is a clear victim of the market rout. AUD/USD is at a four and half month low, back in the range that characterized it at the beginning of the year. Parity with the greenback is not too far.

At 1.0150, the Aussie lost over 250 pips at the wake of the historic US downgrade, and is dropping over 900 pips in one week. The Australian economy has nothing to do with it.

Fear controls the markets due to:

  • The escalation in the European debt crisis, that reached Italy. It might be stabilizing now when leaders finally moved, but doubts are very high.
  • The rising chances of a global recession with slowdowns seen in China (Australia’s main trade partner), the US, Europe, and practically everywhere – the US GDP growth revision was a big blow.
  • Falling commodity prices: Australia is an exporter of commodities – with global fears and no QE to bosst prices, Australia suffers.
  • The S&P Downgrade: This pushed markets lower – when there is fear in general, the Aussie suffers, as it is a high yielding “risky” currency – no matter how well its economy is doing.

So, at the beginning of the year, AUD/USD was trading in a wide range, between 0.98 and 1.02. We are now back in that range.

Apart from the obvious line of AUD/USD parity, we have some support at 1.0080. Under parity, support is found at 0.9940, before the important line of 0.98.

If the pair recovers, the obvious resistance line is now 1.02, followed by the 2010 peak of 1.0254, and 1.0314 is minor resistance, now in the distance.

For more technical analysis for the Aussie, and upcoming event previews (including job numbers), see he Australian dollar forecast.

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