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The AUD/USD is trading between an uptrend support line and a downtrend resistance line, and it will soon have to break somewhere. Fundamentals say the direction is up.

Technical: As seen in the graph below, the AUD/USD is closed by a downtrend resistance line than began with a high in September, was formed in a high point in mid January and was proven in a high of mid February.

And from the bottom up, an uptrend resistance line supports the AUD/USD with 4 low points in October, November, February and March.

AUD.USD Narrowing Channels

According to this graph, the lines meet near the end of month. Till then, this currency pair has little room to move in. So, it will probably break this line before the end of March.

And where will it go? Now, I turn to fundamentals: the Australian economy is one of the strongest economies in the world. Australian GDP showed retraction only in the last quarter, and in quite a mild manner – 0.5%. Other economies are deep in recession. The US is in recession since December 2007.

Australia enjoys the (still) rapidly growing Chinese demand for commodities, and the rise in the price of gold. Interest rate in Australia stands at 3.25%, with the RBA surprisingly not cutting the interest rates in their recent meeting last week.

With today’s expected interest rate cut in their neighbor, New Zealand, Australia will have the highest interest rates in the West, contrary to America’s near zero figure.

In America, Barack Obama’s stimulus package aims to spill lots of money and devalue the US dollar. All other American indicators are poor as well: employment, growth, consumer confidence, etc.

All in all, the US dollar should fall while the Australian should rise. The initial target is 0.68 (February highs) and then 0.72 (January highs).

Now, risk aversion factor is still here, and the AUD/USD could always go down on the “safe haven” run to the greenback. We’ll see how this pair evolves during the month of March.

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