As we approach the end of year several factors are likely to weigh on the Australian Dollar
FED appear on track to raise rates in December:
As long as that expectation remains leading up to the December meeting then traders will buy the USD to push the Aussie lower. At the same time we have ECB who are talking of further rate cuts and lower [negative] interest rates, which is going to help strengthen the Greenback and indirectly weaken the Aussie.
Commodity prices are within a secular bear trend:
Weaker commodities also help strengthen the Greenback and weigh down on the Aussie. However of particular interest is Iron Ore, a key export commodity for the Australian Economy, which sits precariously at its’ all-time lows;
And of course, China:
To make matters worse Chinese imports continue to decline which will have a direct impact on Australian growth, so speculators are shorting the Australian Dollar in anticipation of a weaker economy.
If there is any hope of the Australian Dollar finding a bottom it will require a combination of factors. First off, if the USD becomes too strong then FED will have to lower their rate-hike trajectory, the Greenback will weaken and the Australian Dollar will find support. However the caveat here is FED will indirectly force RBA to cut their interest rates. Commodity prices also need to have found a bottom but trends across the globe suggests we area a long way off from this occurring.
OPEC recently said they expect oil demand to pick up by 2017 which may help time the bottom of other commodity markets, and technically there is an argument for oil to have already bottomed. If oil has bottomed, global inflationary pressure will also pick up and Gold and the Australian Dollar are likely to follow it.
Potential for AUD to bounce after the December meeting: The rate hike, whilst not only underwhelming, is certainly no news. The odds of any rate hike already being priced in are extremely high so Greenback bulls could well 'sell the fact' when rates are higher.
The Aussie remains below the August '14 trendline and forming a potential H&S top (also be on guard for a triple top). The topping pattern projects an approximate target around 66c but this also hinges on a direct break because if we recycle higher than the profit objective also becomes higher.
I would expect a price reaction around the 69c lows as this is going to be a closely monitored swing low (being a multi-year one) and also the Monthly S1. However a clean break below here could see direct losses to 66c.
So whichever way you cut the mustard, the Australian Dollar is poised to go lower next year with potential for it to test the 60c mark (and possibly beyond). However as this is also the GFC lows I do not expect it to go below this level. A lot can happen in global markets in one month, let alone one year, so we may find a situation where the USD tops out, commodities find a bottom and throws the flailing Australian Dollar a life-line. And for me that level is 60c.