Charting Asia

Aussie to Hit Parity with USD? Not Likely: Charts


How often can you postpone the Aussie parity party? 

In July 2008 the Australian dollar (AUD) pushed to $0.98 and parity party invitations were issued. Within days the currency plunged to $0.78, a decline of 12%  The clawback to $0.94 took 12 months to November 2009 before the AUD reached strong resistance near $0.94.

This has become dominant resistance level in 2010. While recent factors have pushed the AUD beyond the mark, there is no strong indication of a sustainable trend above $0.94 in the near term.

The AUD has a significant historical support level between $0.82 and $0.84. The upper resistance level is well established near $0.94. A minor support/resistance area is located near $0.89. These horizontal levels have contained and defined AUD trading activity since November 2009.

The strength, or weakness, of the AUD is closely related to changes, or anticipated changes, of the Reserve Bank of Australia's interest rate policy. This has become an increasingly powerful influence on the AUD behavior rather than changes in commodity pricing.

The trading band rally and retreat behavior is different from the trend behavior seen in the resource commodities. LME Copper during this period has moved vigorously between 360 and 290 — a fall of 20 percent.  LME Nickel has seen a major rise to 28000  followed by a major retreat to 18000 for a fall of 35%. LME zinc has shown a steady downtrend making new lower lows followed by a rally from 1600 2200.  Aluminium experienced two major retreats and one strong rally over the same period. These are the major resource commodity influences and these divergent trend behaviours are not duplicated in the AUD.

The behaviour of the AUD in the past year suggests traders should not be too eager to bet on a AUD-USD parity. A fast rally towards $0.98 is possible but the underlying trend behavior suggests the likelihood of a pullback rather than a sustainable change in the trend leading to consolidation around the parity level.

The rally-and-retreat behaviour makes the AUD a great currency for trading.  When I get my parity party invitation, I will take it as a signal to go short.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders –. He is a regular guest on CNBC's Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.

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