AUD/USD: Temporary Rally Offers Shorting Opportunity
Following President Trump’s announcement that he would not implement tariffs on Canada and Mexico until March 1st, the Australian dollar rallied notably on Friday. The market interpreted this delay as a potential sign of hesitancy from the US administration, triggering a short-term bullish response.
However, this rally is unlikely to alter the longer-term bearish outlook for the AUD/USD pair. Short-term traders and algorithmic trading likely drive this upward movement, making it a temporary reprieve. The author views this rally as an opportunity to establish short positions next week, particularly around the 0.63 level or the 50-day EMA, located just above that point.
While some potential follow-through from this bullish candle is possible, the overall expectation is for the market to eventually break down. The AUD/USD pair is anticipated to remain volatile.
The Underlying Weakness of the Australian Dollar
The author emphasizes that the Australian economy’s strong ties to China remain a key vulnerability. For the Australian dollar to strengthen significantly, a noticeable improvement in Chinese economic data is crucial. While a full-blown depression in China is not anticipated, the current economic numbers remain less than encouraging.
Furthermore, the Federal Reserve’s likely continuation of a tighter monetary policy stands in contrast to Australia’s economic dependence on external factors. This reinforces a strategy of waiting for opportunities to purchase cheap US dollars and taking advantage of those positions. The author believes that this will be a common approach for most traders and sees no reason to buy into the AUD/USD pair in the near term.
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