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Waiting on a Neutral Aussie

The Australian dollar is not one of the big four currencies, but it is still a highly traded asset, especially when coupled with the U.S. dollar. Right now, the consensus opinion on the Aussie is that it is fundamentally neutral—set neither to move upward or downward against the other major currencies.

Last week, the Australian dollar saw its biggest five day gain against the USD that it has seen in six weeks, which is quite strange because the Reserve Bank of Australia’s monetary policy moved against the Aussie in comparison to what the U.S. Federal Reserve’s policies have been.

When a currency is set to move sideways, as experts believe that the Australian dollar will do, there are some specific things that short term traders should be looking at in order to gain an advantage. There might not be a clear trend to follow, but there is still potential for profits because in situations like this, technical indicators become far more powerful in their predictive powers. This is true for traders focusing on the ultra short term, such as what 60 second binary options traders focus on, or for position traders that are stretching out their trades for a week or more into the future. Just ensure that you are looking at the appropriate charts and applying measures on them to give you an accurate outlook for the type of trades you will be executing.

The next step is to look at the fundamentals of the currencies you are trading against. If you’re looking at the Aussie against the euro, for example, the fundamental strengths of the euro need to be considered against the neutrality of the Aussie. This will have a strong influence on the direction that the Aussie will take long term, and thus have a minor influence upon what short term prices do. The technical indicators, when compared to the fundamental strengths and weaknesses, will help you to better form a framework of what your short term trades should look like.

This is important for the next several weeks for the Aussie. It’s expected that speculation on what the Fed will do is going to be a major preoccupation for traders. There is also talk that the U.S. GDP is going to be upgraded for the third quarter. This information is all likely to affect the price of the Aussie in comparison to the USD. A stronger dollar will drive down the neutral AUD. A weaker dollar will move the neutral AUD up. This is yet another reason why the neutrality of the AUD is such an important factor. While in some assets it could be a trader’s nightmare, in this instance it makes predicting price movement much easier.

As U.S. policy begins to diverge from the rest of the G10 nations, there will be ample opportunities for using the dollar’s predicted movement as fodder for other trades, too. However, as the holiday’s approach, it is likely that many investors (and traders) will pull money out of the markets, thus decreasing the liquidity of many assets, including both the USD and the AUD. This creates a lot of ambiguity in the markets, and it can make trading difficult. If you are apprehensive of your trades or are unsure of what the market will do, it’s far better to sit out until there’s more certainty than to try and guess what will happen. One of the marks of a successful trader is that they have the patience and presence of mind to know when to sit out and wait for the markets to move back in their favor.