It has been interesting to see the Aussie dollar bounce back from last week’s low to trade back at US94c, despite talk of a sooner-than-expected US interest rate rise and risk aversion plaguing currency markets. The Aussie dollar was seemingly facing some very stiff resistance late last week, but subsequent price action suggests to me a retest of US95c could be just around the corner.
There are a few signs that the Aussie is positioning for more of a squeeze higher. We have a combination of a higher greenback due to Yellen’s comments and risk aversion, plus the markets ignored strong Chinese GDP to push the Aussie dollar lower. Traders are also somewhat complacent with the Reserve Bank and domestic inflationary pressures which could come back to bite this week.
Is this indicative of a market overreaction?