Aussie Has a Big Outsized Day

I will short signs of exhaustion as they occur, it will not be convinced to buy this market until we break above the 0.72 level.

The Australian dollar has broken higher during the trading session on Thursday as we have seen the US dollar gets hammered. That being said, we are still very much in a downtrend so therefore I do not look at this as something that changes the outlook, rather it could be setting up for a potential opportunity. After all, the US dollar is the strongest currency in the world right now, despite what we had seen during the day. Furthermore, the US dollar was somewhat overbought so it should not be a huge surprise to see that we had a little bit of a turnaround.

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As you can see, the 0.70 level has been important multiple times, so that is not a huge surprise to see that the market reacted here. At this point, I do not believe that the market is one you can buy with any type of confidence, simply because it would only take yet another shock to the system to get people concerned again. The Australian dollar is highly levered to China, and of course the commodity markets. The idea is that if the global economy continues to slow, it could very well put a bit of a beating on the Aussie dollar as a proxy.

One of the main drivers of US dollar weakness during the day was yields dropping a bit, but they are still very elevated at this point. This suggests that perhaps we are going to continue to see the US dollar favored, and that it is only a matter of time before it starts to strengthen again. That is how I look at this market, one that has sold off for a reason, and will continue to do so over the longer term. As things stand right now, I believe this is a scenario in which we need to be cognizant of the yields in the 10 year when it comes to the US dollar. If those yields start to rise again, that will send the Aussie much lower. That being said, it needed to bounce after selling off the way it has, so I look at this as a blip on the radar more than anything else. I will short signs of exhaustion as they occur, it will not be convinced to buy this market until we break above the 0.72 level.