The Australian dollar has initially pulled back during the trading session on Friday, but then turned around to recapture the 0.76 handle. This is a simple continuation of what we have been seen for some time now, Australian dollar strength. This is all predicated upon the “reflation trade”, which could be kicked off by stimulus in the United States. Although sometimes contentious, it should be noted that a lot of the comments around stimulus have gotten markedly better as of late, so that does suggest that sometime over the weekend the Americans will finally put something together.
AUD/USD Video 21.12.20
If and when they do, that should devalue the US dollar, thereby adding a little bit of a push to this pair. Furthermore, the idea is that there would be more demand for commodities if stimulus comes about, and therefore it directly influences the Australian dollar. Beyond that, then you have the question of whether or not China is growing, and by how much? It does appear that China is recovering and if that is going to be the case it makes quite a bit of sense that Australia recovers right along with it, as Australia sends almost 40% of its exports into the mainland.
To the downside, I see the 0.75 level as a beginning of support that extends down to the 0.74 handle, which also has the 50 day EMA sitting just below it. Because of this, I think it would only be a matter of time before buyers would jump back in and start to push this pair to the upside. It is because of this that I continue to think it is a “buy on the dips” type of scenario.
For a look at all of today’s economic events, check out our economic calendar.