Australian Dollar in the Buy Zone

 |  Includes: ADE, FXA, QAN, UDN, UUP
by: Kathy Lien

I really like the Australian dollar for a variety of reasons:

Technically, the currency pair is trading in the Buy Zone, which I establish using Bollinger Bands. But more importantly, in addition to being in the Buy Zone, it has broken out of a triangle and is trading above the 50-day Simple Moving Average. As long as it does not close below 0.6600, the uptrend remains intact and there is a strong chance that we could see the AUD/USD rally to 0.6925-0.7000.

Fundamentally, the gap between Australian and US interest rates will widen Wednesday, which is fueling the US dollar’s weakness against all of the major currencies. However, more importantly the Australian dollar’s 23 percent decline against the US dollar is and will continue to have a very positive impact on the Australian economy. The OECD has already forecast that any recession in Australia will be shallow. Leading Australian companies like Qantas (QAN), Billabong and Fosters have revised up their earnings on the expectation that a weak currency will boost foreign demand for their products. In contrast, the strength of the US dollar will deal a big blow to US corporations in the first half of the year. More rate cuts are still expected from Australia but we should begin to see the benefits from their aggressive monetary easing in the first quarter of 2009.

source: eSignalClick to enlarge