How low can the aussie dollar go
Published in the Daily Telegraph, June 2015 by Dale Gillham
Strapped to commodities boom and bust cycles, we’ve all seen how the Australian dollar (AUD) can end up on a downhill slide.
The question I am being asked right now is whether the AUD has finally stopped falling. And does it have further to go.
Whether you are a currency trader, an importer, exporter, or just someone wanting to book a holiday overseas, the direction the AUD takes from here is going to be very important to you.
So, let’s take a look at what’s likely to occur.
Many people are speculating that the fall may be over, given that the most recent low on the AUD occurred just above the RBA’s target, at 75c.
However, you ought to remember that when a stock, market, currency, or commodity is falling, it can always go lower.
Looking at a chart of the AUD, it has fallen by about 30 per cent since the July 2011 high of $1.108, all the way to the low of $0.7532 in April 2015.
Now let me say, no one has a crystal ball to predict every time, with 100 per cent accuracy, what will unfold, and I tell my traders this.
The most important thing you can do is to a have a view based on sound analysis, and a plan for a move either way.
The more experience you get at working this out, the more accurate your targets are likely to be for any rise or fall, on any stock or market.
The AUD is tied to the US dollar (USD), which means it receives support to rise when the USD falls, and the opposite can occur, which we have seen over recent times, with the USD strengthening, and therefore putting downward pressure on our currency.
Further to this, as demand rises for the commodities that we extract out of the ground, and as their prices rise, this leads to a rise in value for our currency.
A swing the other way, and we see the dollar fall, which has occurred in recent years.
Now in reality, it is not entirely that simple, and you need to be an economist to fully understand what is happening, but how often do you see an economist get their predictions right?
As a technical analyst and trader, my job is not to second guess how all of these things are going to impact on our currency.
All I need do is look at the history of the AUD.
A price chart won’t tell me why something will happen, however it will show, with high probability, what is most likely to occur.
Learn to read a price chart and you can trade the currency to make a profit, or determine when to book your holiday to get a better deal.
You could think of the price chart in this way, like the rings inside the trunk of a tree, telling a story about the tree’s growth, or the sedimentary rock formations under the ground.
So too, a price chart gives you history, which allows you to determine, with a high degree of accuracy, what is likely to occur in future.
My analysis indicates that the April low for the AUD is right on the edge of my target zone for a low, between around 70c and 74c, and between November 2015 and mid-2016.
Given this, my analysis indicates that if the dollar breaks 76c a further fall is likely into that zone. However, before this occurs the AUD may again trade back up to around 80c, and possibly 83c.
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