Aussie Dollar AUD Is Overvalued And Risk A Sharp Fall-RBA

Reserve Bank of Australia (RBA) does not want a strong Aussie Dollar (AUD). AUD/USD is touching record highs. RBA is cautioning the investors that there is a risk of sharp fall in AUD. This warning by the RBA Governor had the desired impact. AUD/USD fell half a cent.One reason for the caution was the historically high level of the Australian dollar, which Stevens said was “overvalued” given falls in prices for the country’s major commodity exports. The strong currency has been a thorn in the side of trade-exposed industries for months, forcing cost cutting and job shedding in some sectors. What it means is that the Australian economy is trying to rebalance itself from the recent mining boom.

AUD/USD is a great pair to swing trade. Each swing trade can make you 100-200 pips. When you trade AUD/USD you should keep an eye on what the Reserve Bank of Australia (RBA) is doing. You should also know what it wants to do. Always remember fundamentals are the driving force in the market. Technicals are just a reflection of the fundamentals in the market. When the fundamentals change, you will see technicals changing abruptly. Sometime you will find the double top or the double bottom pattern and you happily enter into a buy/sell trade with expectations of making big pips. But the market makes a retracement and then starts moving in the other direction. Why? There was no fundamentals driving that move. So you need to understand the fundamentals that drive the market before you look at the technicals. Did you read the post on how to trade with Ichimoku Kinko Hyo indicator?

Central banks have their policy objectives. Sometimes the central banks want their currency to depreciate. Sometime they want their currency to appreciate. Central banks achieve their objective using monetary policy tools that comprises of interest rate and money supply. Australia is a export based economy. When AUD appreciates, this hurts, this hurts Australian exports. So expect RBA to intervene when it things AUD has become too strong for the Australian economy to bear.

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