The initial rally in the Aussie was triggered by greater demand forriskier, higher paying assets. This current leg up is being fueled byspeculation the U.S. will not be able to fund its debt and that itssovereign debt rating will be lowered a notch. Technically, the Aussie is headed toward a major retracement zone.
The AUD USD continued to soar higher and is on pace to test a major retracement zone of its entire range since the top in July 2008. The current range of .9792 to .6008 has created a retracement zone at .7900 to .8346. Depending on the momentum at the time this market reaches this retracement zone, look for profit-taking, or at the least a technical bounces at these levels.
The initial rally in the Aussie was triggered by greater demand for riskier, higher paying assets. This current leg up is being fueled by speculation the U.S. will not be able to fund its debt and that its sovereign debt rating will be lowered a notch.
Ultimately, the Australian economy will have to start showing signs of a recovery. This will come in the form of increased economic activity driven by greater exports. The only negative that may develop will be higher currency prices actually make Australian goods too expensive.
The Reserve Bank of Australia seems to be comfortable with the rising Aussie. In fact Governor Stevens sees a global recovery “towards the end of the year.” This optimism may be tarnished a bit if hard economic numbers do not start showing signs of a recovery.