Some currencies are highly influenced by commodities or commodities are highly influenced by some currencies (great chicken or the egg debate). The Aussie Dollar is a currency that has a high correlation to the commodities space. Below looks a the Aussie Dollar over the past 16-years.
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The Aussie Dollar hit rising channel resistance back in 2011, failing to breakout. As this was taking place, commodities were peaking, at the same time. Since this peak in the Aussie Dollar, the CRB index has experienced the worst 5-year performance in its history (down 5-years in a row). For those long commodities over the past 5-years, its been a painful journey to say the least.
During the sharp decline over the past few years, the AU$ has remained inside of falling channel (A). Over the past couple of months Oil has rallied, pulling commodities and the AU$ higher along with it.
The AU$ is now testing falling channel (A) resistance as well as the underside of 15-year rising channel, as resistance at (1) above. This “Dual Test” of resistance is very, very important. At this time the AU$ and Commodities remain in a down trend (lower highs and lower lows).
What happens at (1) could tell us a ton about where commodities head over the next 6 months or longer and could be a big message from a global macro point of view. Even if you don’t care to play currencies or commodities, what the AU$ does at (1), could well impact stock and bond positions going forward. If the AU$ breaks out, it would send a positive message to the hard hit commodities space and potentially a positive message from a macro point of view.
I humbly feel what happens at (1), is a BIG deal, on countless fronts friends! If the AU$ is unable to breakout and would continue to slide lower, it would send a concerning macro message. Not something, the world wants/needs to take place.