Mathew Barnes
Mathew Barnes

The strong Australian Dollar seems to be common knowledge wherever I go. Everyone is talking about the magic word “parity” and wondering when the value of the Australian Dollar will exceed the value of the US Dollar.

As a trader, I need to put such thoughts aside and concentrate on the business of making money! The Australian Dollar has provided numerous opportunities to make money over the past four years. It has made large ranges in price and produced great profits for those who managed to hold on for the longer runs.

The 2005 calendar year was the last time the Australian Dollar (AD-Spotv in ProfitSource) had what could be called a “boring year” for traders. It fluctuated in value between 0.7000 and 0.8000 US cents between the March 2005 high and the March 2006 low.

Since then, it seems that the Australian Dollar has either been tearing away to the upside or crashing to the downside. While these times have often been nail biting for investors, they have provided opportunity after opportunity for the shorter term traders.

The Australian Dollar barely skipped a beat as it grew in value all throughout 2009, moving from the October 2008 low of 0.5975 to its November 2009 high of 0.9382.

Chart 1 below shows the recent bullish ranges on the Australian Dollar.

Chart 1

click chart for more detail
click to enlarge

Since the April 2001 major low, we have seen three very strong pushes to the upside by the Australian Dollar, each around 3200 points. One point on the Australian Dollar is 0.0001.

It is not surprising to see the same size range repeating from the October 2008 low. It is the speed at which it moved up that was impressive.

The first range of 3206 points (in Chart 1 above) took a little over 1000 days. The second range of 3040 points took around 1500 days. This current range up into the November 2009 high took a mere 385 days. The Australian Dollar has since been moving in a sideways pattern with a slight negative bias. Tuesday’s decision by the Reserve Bank to keep interest rates on hold added some negative momentum to this market.

For a long time now there has been talk of “parity” between the US Dollar and the Australian Dollar – that is, one Australian Dollar will buy one US Dollar. While I am confident that is coming, I don’t believe it will happen in the first half of 2010.

This market is overbought and needs time to consolidate. The time needs to catch up to the price, and I wouldn’t be surprised to see a prolonged sideways pattern or some negativity. I certainly don’t think now is the time to be going long on the Australian Dollar.

In the long run I expect to see the Australian Dollar overtake the US Dollar, perhaps even dominating the greenback for quite some time. But I think the US Dollar will maintain its dominance over the Australian Dollar – for now.

Be Prepared!

Mathew Barnes