Aussie Dollar Next Six Months: Up or Down?

Forecasting is a tough job.

If you’re wrong, people will never let you forget. And if you’re right, people never remember.

But not to worry. We’re foolish enough to play along yet again…

The Aussie dollar is something we think about a lot.

Did you know that the Aussie dollar is one of the five most traded currencies in the world? And like many commodity currencies, it can be highly volatile. That’s why it’s popular with traders.

Where is the Australian Dollar likely to go next?

Uncertainty reigns when it comes to the future of the Aussie dollar. Business Insider Australia wrote yesterday:

‘Trade war fears continue to weigh on the Australian dollar.

‘The Aussie was under pressure from the get-go on Wednesday, undermined by a continued slide in the Chinese yuan which fell to its weakest level since late 2017 during the Asian session.

‘Chinese stocks were also hammered, keeping the Aussie under pressure.’

The Shanghai Composite Index is in a technical bear market. It has fallen by more than 20% since late January, impacting the Aussie dollar. Remember, the Aussie economy is extremely leveraged to what happens in China. That’s why the Aussie dollar is trading near yearly lows.

The Chinese yuan has also been hammered. It’s lost more than 6% since late March.

Business Insider Australia explains:

“Adding to the risk-off mood was some coverage of what looked to be a worrying internal Chinese think tank report on deleveraging and liquidity that had appeared briefly on the Internet on Monday, before being removed,” said David de Garis, Economist at the National Australia Bank.

“The National Institution for Finance and Development warned that ‘China is currently very likely to see a financial panic.”’

The group warned of bond defaults and liquidity shortages in China. That’s aside from the ongoing trade war. It doesn’t sound good for China…or the Aussie dollar. But we have heard the same thing for years.

Worried?

This finance expert is predicting a serious crash in the value of the Aussie dollar. Get survival tips here (free).

I wouldn’t be…

Many people don’t know. But, the Chinese government is sorting out its debt crisis. It’s acquiring and nationalising heavily indebted private companies for cents on the dollar. That’s why I don’t think the Aussie dollar will get much weaker; at least, not right now. The near-term story depends on commodity prices…

 Technically speaking

To understand why, take a look at the monthly chart of the AUD/USD exchange rate below:

exchange-290618

Source: Tradingview.com; Gold Stock Trader
[Click to enlarge]

During the Global Financial Crisis of 2008/09, commodity prices crashed when the US dollar skyrocketed. The Aussie dollar nosedived to 55 cents. If the Aussie dollar was going to crash again, you’d expect commodity prices to go down the drain with it. At the moment, though, most commodities look strong.

If you believe Barclays, however, you won’t agree…

Kitko News reported on Wednesday:

Investors should not buy the dip in the commodity sector as price performance is skewed to the downside for the rest of the year, said Barclays Commodities Research.

The main drivers keeping commodities prices at bay are deleveraging in China and weakening synchronous global growth, Barclays said in a recent research report. 

“The commodity rally that ensued in April has stalled since mid-May, and we are skeptical of anything close to stunning outperformance through the balance of the year,” analysts at Barclays said.

The Goldman Sachs Commodity Index jumped 12% from January to its peak in May. But that rally has stalled. The index is now around April levels. That said, crude oil has surged back above US$80 per barrel.

It sounds promising.

But not all commodities are doing well. Livestock is the worst performer of the year, down 7%. Gold is experiencing an overdue technical correction. Zinc is holding up. Yet, despite a bit of weakness across the board, the market is worried about commodities.

Though I’m not…

Nothing goes up in a straight line forever.

Commodities look good to me. That’s why, as you can see on the chart below, the Aussie dollar remains above major technical support, which is everything you need to know:

exchange-290618

Source: Tradingview.com; Gold Stock Trader
[Click to enlarge]

During early 2016, when the Chinese market sold off sharply, the Aussie dollar hit 68 cents. That level needs to be taken out on a closing basis to start worrying. That said, there’s major technical support around the 71-cent zone. A monthly closing below 71 cents should confirm a deeper correction.

I wouldn’t count on that happening…

I believe we could see a strong bounce of the 71 cent level. So, unless commodity prices fall off a cliff, which doesn’t look likely right now, there’s little chance of an Aussie dollar crash right now. I believe the Chinese story is over exaggerated, with its stock market down 20%.  A few months and everyone should be bullish.

That’s the mainstream media for you!

Regards,

Jason Stevenson,
Resources Analyst, Gold & Commodities Stock Trader

PS: This finance expert is predicting a serious crash in the value of the Aussie dollar. Get survival tips here (free).


Jason Stevenson is Markets & Money’s resource analyst. He shares over a decade’s worth of investing and trading experience across resource stocks and commodity futures and options. He originally studied accounting and finance at Curtin University, where he was awarded a first-class honours degree. His professional background stems across high-net-worth, top tier accounting (corporate finance, tax and auditing), and sell-side equities research. Before joining the team at Markets and Money, Jason worked at boutique firms which advised fund managers and high-net-worth clients on where to invest. Whether it’s gold, crude oil, copper or an obscure metal like vanadium, you can rely on an in-depth analysis in Markets and Money. Jason also brings you extensive macro, political and geopolitical analysis from around the world. He leaves no stone unturned when it comes to telling the truth. Jason is also the lead analyst of Gold Stock Trader, a premium service for investors serious about precious metal stocks. Websites and financial e-letters Jason writes for:


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