Australian Dollar Preparing to Break Out

I am one of those expecting a shift in economic power from Western economies (namely the US) to Eastern economies (China, Japan, etc) through the end of 2012. In particular, Australia, as a producer and exporter of precious metals -- which stand to rise when fiat currencies are troubled -- and commodities, may find its currency in greater demand.

So is it time to buy the Australian dollar? Let's take a look at the price chart to get an idea if now is the time.

After being in a strong bear market since August 2008, the Australian dollar is now rallying. It is currently forming an ascending triangle/rising wedge pattern, as the chart above illustrates. The hourly and weekly chart also show consolidation, suggesting the market may be ready for a breakout.

For US stock market traders, FXA is an ETF that tracks the Australian dollar.

Disclosure: Long Australian Dollar.

Comments

[swygert@law...:]

Mr. Patel's articles are often on the money (sorry about pun). After a recent trip to Australia, I came away with a feeling that the world recession has so far has not have a strong of impact on the Austrailian economy as it has in most other countries. As he says, Australia with its abundant natural resources having great exportable valuable is situated to profit from the inevitable rebound in the world economy. Moreover, given the country's relative healthy balance sheet,the Australian dollar is set to rise and likely remain high in comparison to the dollar as it deflates. Yes, this may cause most fiat currencies to in time deflate as well, but in the case of Australia, it will be backed not by gold or services, but by hard assets other than precious metals. Having said this, often when I have been long in a specific currency I have not done particularly well. Thus, I think it might be better to invest in the the equity and investment grade bonds of the the country's strong, commodity based companies to reap the values of both the likely devaluation in the U.S. dollar and foreseeable increase in the Aussie dollar.

2008 Dec 31 08:58 AM

[Rokjok777:]

I moved from the US to Australia 3 years ago and am very bullish on this place. So far the media talks alot about recession but everyone I know (tradespeople, retailers, execs, bankers, IT) are running as fast as they can to keep up with demand. They have some of the top-rated banks in the world here, the gov't never let them bet the farm so a few execs could make millions, duh. Their biggest trading partner now is China, not the US, and they have tons of business ties to the rest of Asia. There is lots of money coming here as the UK gets more and more miserable and the quality of life in places like Canada and the US declines. We are so glad to be here and will probably drop our US citizenship so Uncle Sam no longer taxes us! The US is the only country in the world that taxes based on citizenship, not residency. Explain that one for me....

2008 Dec 31 06:11 PM

[Maxe Paul:]

Im an Aussie, and yes we have not had the worst of it by half, that is for sure, but risks are now, that commodities have collapsed that Australia gets a delayed recession. I still believe our housing market needs to lose some value, and interest rates are well behind the current wordwide curve of lowering. In fact our reserve bank governor will not be cutting this month because he is on holiday! Very risky move IMO. The dollar may be representing a high interest rate environment, but we need to cut much more than others now. We were the first to aggresively cut rates, but now is not the time to fall behind. It's going to be very close if Australia enters a recession, much too close to call.

Jan 01 09:07 AM

[bagnap:]

This would have to be the most uninformed and stupid set of reasons to buy the aussie dollar, backed up by a set of grand, chesterfield chair style musings on global power relationships and a spurious chart of the last 2 years trading (just to put the technical cherry on top....).

Let me attack your ideas one by one.

1. "I am one of those expecting a shift in economic power from Western economies (namely the US) to Eastern economies (China, Japan, etc)". Well, sure, nice idea. Very Macro. You are to be complemented on your Forward Thinking-Ness. So, as a fairly advanced, western economy, what does the Aussie dollar have to do with this trade opportunity? Why not buy yen? Why not buy Chinese shares or some Nikkei futures? Buy some Indian shares?

2. "In particular, Australia, as a producer and exporter of precious metals". Well, yes, that is true. However, there are a few other things we export, like iron ore and bauxite (aluminium ore) which completely overshadow our gold exports. We also have a fairly strong banking and services sector.

3. "fiat currencies are troubled". Umm....The Australian Dollar is a fiat currency.....en.wikipedia.org/wiki/.... We did away with the gold standard some time ago....And if fiat currencies are troubled (in the sense that they are losing some of their 'fiatness'), why wouldnt hedge funds pick on the one with the most liquidity (5th most traded currency in the world) and is the most vulnerable (tiny army, vulnerable to global demand through commodity prices, small central bank, similar property problems as the USA).

4. "fiat currencies are troubled"....Anyway...... they? How? Since when? Do you count the strengthening Euro in this statement?

5. "fiat currencies are troubled". Hell...buy gold...Dont buy the Aussie Dollar. Just buy gold..Buy gold....

6. Lucky last....if you are looking for such a long term macro trend why restrict your historical bear market to such a short term horizon starting since August 2008?

6. Buy for the breakout...Well, yes you could, but if you are really trading such macro trends surely you would want to look at a little more history a but further back than AUGUST 2008....You'll see (if you look back a bit further and do some research) that in the last commodity price shock (Asian Crisis, where oil went down to $10 per barrel) the Aussie was completely hammered down to sub 50c.



I'll address them one by one.
You claim to bel

Jan 02 02:53 AM

[Distressed ...:]

Great timing on that pop (I was watching aud/jpy), it was ready to break that 50 day mov avg. Just keep watching economic data, commodities, and central bank moves. If fear/deflation comes back there will still be pressure on the aussie dollar but w/ global monetary stimuli hitting the scene it could be a great play on the reflation trade..check out blog

Jan 02 11:07 AM

[bagnap:]

Well, it popped!
Congrats on making money.

If you are looking for another popper, take a look at AUD/GBP on a 10 year chart.

www.ozforex.com.au/cgi...

Jan 04 06:59 AM