AUD/USD – Too Good To Be True?

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AUD/USD closes the week at 1.0560, breaking every record, every resistance line and also gravity on the way. There are many good reasons for a stronger Aussie. Here’s a nice list of 5 major factors. There may be even more. But there are signs that the pair is running out of air. Will we see a big correction?

Australia is doing well. I am usually bullish on the Australian dollar. It’s a relatively predictable currency pair that already passed the Swiss franc in trading volume. And it has at least 5 reasons to rise:

  1. High interest rate: At Even before the rate hikes, Australia had an interest rate of 3%, much higher than the US and also above other Western countries. Standing at 4.75%, the higher yield makes a good candidate for the carry trade.
  2. China: Perhaps China is slowing down, but it still at very high speed. Australia’s main trade partner doesn’t really stop to rest.
  3. Rising commodity prices: Australia’s economy is commodity oriented, and with precious and not so precious metals like copper and iron on the rise, the Aussie is also on the rise.
  4. Low unemployment: It’s not only the wealth of the mining sector, but also other sectors are quite healthy, as the unemployment rate fell to 4.9%. This is very fresh data. Australia was never in a recession during the current crisis.
  5. Steady banking system: There isn’t anything special in Australia’s banking system. That’s good enough, given the troubles in the US and in Europe.

All these factors aren’t new, but they are confirmed over and over again. Great.

There are of course, many reasons why the US dollar is weak.

But wait, isn’t it too much? Since the bottom of 0.97, reached on March 16th (following the Japanese earthquake), AUD/USD rose by almost 9%. In about 3 weeks.

Yes, after breaking out of range, a strong move forward was expected. That’s the meaning of a breakout, and the Aussie usually “behaves” well. The pair traded between 0.98 and 1.0180 for quite some time before the Japanese disaster – a 380 pip range. You would expect it to find resistance 380 pips higher. That’s exactly 1.0560. Will it mark a top here, at the weekly close?

And finally, we have the CFTC report. Aussie long positions shot up:

Speculators’ net long Aussie position rose to 90,938 contracts, the biggest on record, according to CFTC data.

Is that good for the Aussie that everybody’s long on it? Probably too good. Because when everybody’s long, who’s left to buy? Probably no one.

Extremes in longs or shorts often mark points of reversal. Will we see a significant correction, or will it proceed higher, as usual?

Get the 5 most predictable currency pairs

About Author

Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.

10 Comments

  1. Not really ! Yohay !

    In forex, CBS&XXXX need ultimate Insane to kill guys like you – fundament analysts !

    Aussie will never fall unless guys like you died !!!

    That’s CBS&XXXX’S BASIC JOB AND RESPONSIBILITY — KILLiing MAJORITY !!!

  2. Elliott Moore on

    I’m buying AUD/JPY on every dip and have been doing this for weeks. Will continue for several more months.

  3. 1,072 – according to my calculations aussie will stop at this rate.

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  5. The aud/usd has made a great run but on every technical level it is time for a major correction. I am a firm believer in past history and if you look at the numbers and history it is time for a huge correction with my numbers at around .98. The dollar will rebound from the government shutdown that did not happen which is what i feel made the pair go stronger or this correction would of happened during last week.

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  7. AUD/USD should get into huge correction mode now 0.95. This pair is overbought.