AUD/USD - Is the correction over?

Posted by Graham Parlane on 29 March 2012

Hi All

The correction down off the 1.08 highs in the AUD/USD (and correspondingly the NZD at 0.8470) started after FED chairman Bernanke made no mention of QE3 in his semi-annual congressional testimony in early March. Through this period the market has concluded that the FED is finished with super easy monetary policy. I have constantly disagreed with this notion. Overnight, and on Monday, Bernanke has been quite clear. He views this recovery as weak and the recent improvement in jobless numbers as non-sustainable. My interpretation is that super easy is here to stay for a considerable time. Indeed the last FOMC minutes reaffirmed the commitment to that until ‘late 2014’.

Another focus affecting the AUD (and NZD) has been that Chinese growth is slowing. Firstly the Chinese themselves revised down their growth to (a still whopping) 7.5% and recent data releases have been weak. However I will contend that the very lengthy Chinese New year celebrations in the most important of all years (Dragon) are impacting on these recent releases and that we will soon see an improvement (Sunday’s PMI release?).

Looking at the charts, overnight the AUD/USD made a strong comeback precisely off my up-trend line off the October 2011 0.9400 low.

AUD/USD Chart – click to view 

My suspicion is that the time to buy is upon us for a return to the dominant up-trend. That said, there is significant event risk in the form of the Chinese PMI released on Sunday and no doubt digested in the thin trading conditions of Monday morning.

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Regards G.

Tags: AUDUSD, Futures trading, FX trading