Aussie Whipsawed by Commodities
Today's Idea
The Aussie Dollar has been adversely affected by outside factors which include the commodity sell-off and risk aversion. Commodity prices appear to have stabilized, but the upside may be somewhat limited due to poor economic showings in the US and EU, as well as the mounting debt problems facing the EU. Technically, the June Aussie finds itself in a vulnerable position, teetering above support. The direction of the market is difficult to gauge at this time. Some traders may wish to consider entering into a bear call spread, selling the June Aussie 1.07 call and buying the 1.08 call for a credit of 0.0025, or $250. The maximum profit on the trade would be the initial investment while risking $750.
Fundamentals
Australian Dollar futures continue to slide, after peaking early this month, dragged down by weaker commodity prices. The currency has also suffered due to investors seeking safe haven investments because of shaky commodity prices, concern over the Euro, and slowing economic data from several large economies. The Aussie has been the poster child for growth currencies, offering investors better yields and growth prospects. However, investors have been lessening their risk exposure throughout the month, which has hurt the Aussie. Economic growth may win over the Aussie's critics over the long-term, despite the outside forces working against the currency in the near-term. Australia has been isolated from the mounting debt issues facing most industrialized nations, and the trade relationship with China offers the Australian economy huge upside. Traders may wish to closely monitor Chinese economic statistics and base metal prices to get a better feel as to the direction the Aussie may take.
Technical Notes
Turning to the chart, we see the June Australian Dollar holding near support at the 1.0500 level. A breakdown below support here would suggest that prices could test stout support at 1.0175. The 1.0175 level could be seen as critical support, as a violation of the level could take the currency below parity with the greenback. Currently, prices are trading neat the 50-day moving average. A close below the average could be seen as a negative indicator over the mid-term. It is of interest to note that the momentum and RSI indicators are showing bearish divergence, hinting at near-term weakness.
Rob Kurzatkowski, Senior Commodity Analyst
