High Aussie masks economic weakness

JUST how long do we need to delay taking a holiday in Australia? The Reserve Bank of Australia, and Singapore tourists, hope the strength of the Australian dollar is temporary but the chart suggests there is no relief soon as it heads towards a technical target near US$0.83. The Australian dollar has developed a strong break-out above the upper edge of a long-term trading band. This break-out comes at a time when the Australian market is one of the weakest-performing markets globally. It lags the Singapore, US, UK, German, Taiwanese, Malaysian and South Korean markets by substantial amounts, so it's not Australian economic strength that is driving this break-out.

The Australian dollar's strength is a direct consequence of weakness in the US dollar, which in itself reflects the deep disillusionment with President Donald Trump's policies and endless tweets that defy reality. The trading band is the most significant feature on the Australian dollar chart. The upper edge of the trading band near US$0.775 was established in April 2016. The lower edge of the trading band near US$0.715 was first tested in June 2016.

The trend behaviour since June 2016 has been weak with the Australian dollar essentially moving sideways. In November 2016, the Australian dollar retreated strongly from resistance near US$0.775 and by December 2016 was testing the support level near US$0.715. The rebound rally from this level confirmed the strength of the trading band. The sharp fall from US$0.775 to US$0.715 and the sharp rallies from US$0.715 to US$0.775 offered good trading opportunities but they do not indicate strong trend changes. The break-out above US$0.775 is significant because it's the first strong move in 18 months.