By Aaron Tyrrell
The answer is up. And down. Let me explain…
In mid-October 2010, the Aussie hit par with the US dollar. In November, it leapt that hurdle. And by May 2011, it hit a record high of US$1.10.
Today it’s at US$1.09621… And it could have its sights set on reaching new highs again.
Source: x-rates.com
I asked Slipstream Trader Murray Dawes this morning, ‘Will the dollar go down from here?’
He said, ‘If the US keeps printing money, I don’t see why it can’t hit US$1.30.’
Great news for online shoppers…
That’s a price the Aussie hasn’t been near since the mid-1970s (as you’ll see on the chart below). But that doesn’t make it a radical call…
The Aussie dollar success story is really a US dollar debt story.
And right now, the US dollar is getting creamed around the world. At nine o’clock this morning, the euro was buying US$1.4471.
But US investor, Jim Rogers pointed out the spanner in the works that could halt the Aussie’s rapid rise. ‘The world doesn’t have enough cotton for Bernanke to print all that money.’
Ha!
I guess that’s why some jokers online suggest the US mint a trillion-dollar palladium coin.
Jokes aside, there’s no doubt the US will try to print its way out of trouble.
But even if it does… And Murray is right about the Aussie dollar hitting US$1.30 in the short or medium term… There’s really only one way for the Aussie to go from here…
Look at this chart:
On the far right you can see the Aussie dollar is reaching highs against the US dollar it hasn’t hit since 1983.
Now look at the rest of this chart. You can see, every time the dollar hits a high against the greenback, it starts to drop. If it were to fall from its high – as it did near the end of 2008 – it wouldn’t find ‘support’ until it hit 98 cents.
I’ve pencilled in some rough ‘support levels’… 98 cents, 85 cents and 80 cents…
If the dollar were to have a mega slide… these are the levels it is likely to hit and have to break through. After that, the falls could get much sharper. BANG – to 70 cents… then 60 cents.
All signs seem to point to the Aussie going down in the long run…
But, in the short term… As the US debt crisis grows more serious… And investors move to the relative safety of commodity currencies, like the Aussie and Canadian dollar… US$1.30 might be a good call.
Aaron Tyrrell
Editor, Money Morning
