3 Reasons Why You May Want to Buy the Aussie

In the last three days, the Aussie has been performing like a beast! After it had touched the .9600 handle, it rallied strongly and made its way towards parity. Will the Aussie continue to perform well?

Given the recent positive developments in Australia, it looks like it will. Parity is only the beginning, and the currency has more room to move up. In fact, Australia’s Treasurer Wayne Swan describes Australia’s economy as “stunning” and “extraordinary.” He also said that Australia is the strongest performing developed economy… bar none!

Stellar GDP Growth

Australia’s very impressive GDP for the first quarter is one of the reasons behind the Aussie’s strength. The country’s most recent GDP report showed that the economy expanded by a whopping 1.3% during the first quarter.

This was a huge improvement from the previous quarter’s 0.6% growth. In addition, it overshot the market’s expectations by almost three times!

The strong reading makes Australia an outlier compared with the stagnant economies of much of the developed word. The International Monetary Fund (IMF) predicts that Australia will probably overtake Spain as the 12th largest economy by the end of this year.

Strong Jobs Report

And of course, let’s not forget the impressive jobs report that we saw yesterday.

While markets expected a 2,200 drop in jobs for May, official government data showed that 38,900 people actually joined the workforce during the month. The jump in jobs came with a rise in the unemployment rate though.

For May, the rate of joblessness came in higher at 5.1% from April’s reading of 5.0% (which was also upwardly revised from 4.9%).

But don’t be fooled. Digging a little deeper into the report, I found out that the rise was primarily because of a higher participation rate. Remember that the unemployment rate only takes into account individuals who actively look for jobs but are unable to find any. The figures implies that more people actually started to job hunt.

Bullish Price Action

Looking at the technical side of things, it looks like the Aussie is also poised for some gains. On the weekly chart, we see that the sell-off on AUD/USD stopped at the major support level around .9650. Stochastic also shows a bullish divergence with price making lower lows while the indicator is making higher highs.

AUD/USD Weekly Chart

The combination of positive data, as well as the bullish price action, suggests that we’ll see AUD/USD trade higher in the coming weeks. Well, at least to me.

How about you? Do you think the Aussie’s ready to stage or a reversal? Or will the bears take over again?

1 comment

  1. alwjmonster

    Hi Piponomics, isn’t a typo “price making lower lows while the indicator is making higher lows”?corrected “price making higher lows while the indicator is making lower lows”.

    Reply

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