Hot Commodities Boot Aussie
Today's Idea
Australian Dollar fundamentals remain very strong at the present time. The currency has benefited from its own economic growth, positive interest rates and the shortcomings of other industrialized currencies. Technically, the Aussie has broken out to new highs, a sign that the rally may continue. Because the currency is in uncharted territory, picking an upside objective may be difficult. For this reason, some traders may wish to sell a May Aussie 1.04 put for a premium of 0.0035, or $350. The initial premium would be the maximum profit and the trade has unlimited risk, so traders may wish to consider closing the option trade on a close in the underlying below the 1.04 level.
Fundamentals
Rising metal and energy prices helped the Australian Dollar vault to new highs versus the US Dollar. The commodity-producing nation has ridden the wave of rising precious metals prices and stout growth in China, a major trade partner. Many currency traders have looked to capitalize on growth currencies, rather than position themselves in US Dollars and Euros. The US currency has fallen out of favor with traders in recent years, due to mounting government debt and slow economic growth. Europe has its own set of debt problems and there are several nations that need bailouts or they may face possible defaults. In addition to the outside market support, the Aussie is supported by favorable interest rates versus other industrialized nations. The government has indicated that it will not take steps to curb its country's currency at the present time, which could offer additional price support.
Technical Notes
Turning to the chart, we see the June Aussie Dollar continue to climb after taking-out resistance at 1.0160 in late March. Today's jump above 1.0500 signals a fresh breakout. The bearish divergence between the RSI and prices could be a sign that prices may retreat a bit. The indicator peaked when prices initially tested 1.0500.
Rob Kurzatkowski, Senior Commodity Analyst
