AUD/USD gapped at the open during Monday trading in Asia. The pair finds itself in the 1.08 area, and this area is one that will attract a lot of attention at this point. The pair has been strong lately, and has been used as a proxy for yield, safety, and “risk on” appetite in general. Because of this, the pair has been one that selling is very difficult.
The gap has filled already, but the reaction at the bottom of it has been muted. This is probably in part due to the fact that the Americans were off celebrating President’s Day, and as a result the volume was quite think in the latter hours of the session. The move in the earlier day was interesting as it flies in the face of a bailout agreement coming. The pair should have shot straight up, but perhaps the market is growing tired of the constant Greece turmoil in Europe, and as a result is much muted in its reactions.
The Chinese have also cut reserve rates for domestic banks, and as a result flooded the economy with liquidity. The Chinese buy a lot of raw materials from Australia, and as a result this is a strong sign for the Aussie in general. With that being said, the 1.08 barrier is one that traders will have to be aware of going forward. It has been resistive a couple of times now, and even though the recent action suggests that the market is going to go much higher, a pullback looks very possible at this point in time.
With all of this in mind, we are buying the Aussie on pullbacks, and most certainly if the pair can close above the 1.08 level on a daily close. The Australian dollar got a bit of a boost recently when the central bank didn’t cut rates. The markets had anticipated a cut, and when it didn’t come – the Aussie gained. With all things being equal – we still stand by our prediction of a 1.12 print in the pair based off of the triangle breakout form 1.04 earlier.