DailyFX.com -

Talking Points:

  • AUD/USD has broken a major trend line on a Daily chart.
  • Speculative Sentiment (SSI) has flipped negative for AUD/USD.
  • Positive rollover interest pays traders who are long the Aussie.

Anytime we (as traders) can find multiple reasons to buy or sell something, we are more likely to place the trade and feel more confident the trade has an edge. But oftentimes, I see traders only focusing on one type of analysis. Today we will look at the AUD/USD currency pair through the perspectives of a technical trader, a sentiment trader, and as a fundamental trader.

AUD/USD Technicals - Bullish

If you're like me, then we like to start off looking at a pair with a Daily chart. It can give us a sense of what price might be doing on a longer term basis and can shape which direction we have a bias towards. It's a good idea to look for trends, ranges, and breakout opportunities.

The AUD/USD Daily chart stands out to me as a breakout to the upside. Drawing a trend line from the October 23rd high to the April 10th and May 14th highs, we can see price has broken above this trend line and has held above this level for the past couple of days.

Learn Forex: AUD/USD Daily Chart - Breaking Trend Line

3 Diverse Arguments for Traders Buying the Australian Dollar

(Created using Marketscope 2.0 charts)

You may have also noticed the Relative Strength Index's trend line has broken to the upside as well, giving us two confluent triggers for a bullish position.

AUD/USD Sentiment - Bullish

Sentiment is my favorite Forex trading tool. I credit it with turning my trading history from red to black, so I give it a lot of weight when it comes to picking my direction bias. This past week, we have seen Aussie sentiment flip where there are now more people selling the Australian Dollar than buying it. Since SSI is a contrarian indicator, we want to do the opposite of the retail trading crowd and look for buying opportunities. Negative SSI is a bullish signal for the AUD/USD.

Learn Forex: AUD/USD Speculative Sentiment Index (SSI) - Flipping Negative

3 Diverse Arguments for Traders Buying the Australian Dollar

(Screen capture from DailyFXPlus.com)

DailyFX updates the general public with their SSI readings every Thursday, but it is updated twice a day if we have access to DailyFX Plus. This keeps us up to date with current shifts in sentiment and could get lead us to enter trades earlier than others following the weekly public updates. We are currently in a situation where the public page is showing a positive SSI reading, but those in the know with DailyFX Plus access can see SSI has flipped to negative. For more information on accessing DailyFX Plus, click here.

AUD/USD Fundamentals - Bullish

Interest rates are one of the main driving forces of FX. Investors tend to go where they can obtain the greatest yield, including those that participate in the currency market. So it makes sense to look for this type of yield ourselves, even if we consider ourselves more so as traders than as investors.

The Reserve Bank of Australia currently holds a target interest rate of 2.5% for the Australian dollar, which on its own sounds pitiful. But 2.5% is pretty good when compared to the Federal Reserve's target rate of 0.25% for the US Dollar. So how do these figures apply to our potential trade? They apply by allowing traders to buy higher yielding currencies against lower yielding currencies to earn what's called "rollover interest." Rollover is applied to any trades open at 5pm New York time.

Learn Forex: AUD/USD Rollover - Currently Paying Traders 0.42 pips/day

3 Diverse Arguments for Traders Buying the Australian Dollar

(Created using the Trading Station Desktop Platform)

The AUD/USD rollover stands at $0.42 for a 10k trade, or 0.42 pips/day that you have the trade open. We tend to put more weight on rollover when the potential trade is longer term. After all, the more days we are in the trade, the more rollover we could potentially collect. So from a longer term fundamental perspective, it would make sense to look to buy the AUD/USD pair.

The Awesome Aussie

So, those are 3 arguments that can be made for buying the Australian Dollar against the US Dollar; the technically based trend line break, sentiment flipping to a negative value, and fundamentally based mismatch in interest rates creating a positive yield for buyers. But as always, perform your own due diligence before placing any trades on your own account. Also, feel free to utilize a demo account to practice trading risk-free before trading with real money.

Good trading!

Related Articles
  1. Forex Education

    Four Currencies Under the Spotlight in 2016

    With currencies having become the “tail that wags the dog,” in terms of their impact on the global economy, these four currencies will be under the spotlight in 2016.
  2. Forex Fundamentals

    These Currencies Are The Biggest Losers Of The Stock Downturn

    Here’s a list of the hardest-hit currencies amid the global stock market mayhem.
  3. Forex Strategies

    Will the Euro Continue to Rally? (EUO)

    The euro is rallying. Should investors chase this performance or is the real opportunity on the other side of the trade?
  4. Investing News

    China’s Forex Reserves Dropped Significantly

    China’s forex​ reserves dropped by a record $93.9 billion at the end of August to $3.56 trillion because the Central Bank has been selling dollars to provide a cushion to the falling yuan​
  5. Forex

    The Pros and Cons of a Fully Convertible Rupee

    Amid the rising economic power of India, the talks of making the Indian currency fully convertible are gaining momentum. We look at the pros and cons.
  6. Forex Fundamentals

    Chinese Yuan an Unlikely Reserve Currency

    As the world's second largest economy, China's challenge to America’s dominance includes a push to make the yuan (RMB), the world’s reserve currency. Whether it can do that now is unclear.
  7. Economics

    How Currency Enforcement Helped Sink The Trans-Pacific Partnership (TTP)

    One particular barrier to trade that has received much attention of late and caused delays in negotiations of the TPP is exchange-rate manipulation, by which a country artificially devalues its ...
  8. Forex

    Top U.S Forex News Sites

    Breaking news moves forex markets. Here are the top U.S. sites for tracking forex news.
  9. Investing

    Financial News Comparison: Bloomberg Vs. Reuters (BAC, GOOG)

    Access to financial information has grown with the expansion of digital news. Bloomberg and Thomson Reuters lead the pack, claiming a majority of the business information market.
  10. Economics

    Who Benefits From South Korea's Lowered Interest Rates?

    South Korea is the latest country to cut interest rates in an attempt to stimulate economic growth.
Trading Center