Australian dollar battles to recoup late-July losses

The Australian dollar has added 50 pips today in the third day of gains. It’s at the highest since July 18 and also at levels that would be the highest since January excluding the June-July ramp.

What’s particularly impressive is that AUD is rallying despite all the poor indications from China, including the recent plunge in iron ore prices.

Unfortunately, that’s what I also think will cap the rally. For more than two decades, the Australian dollar has been tied to China and I can’t see that changing. I think that eventually China will turn and maybe the market is sensing that but I would like to see clear signs of real Chinese stimulus before chasing AUD returns. Moreover, I’m concerned about Australian real estate.

On the technical front, the quick rebound from 0.64 is a good sign for the buyers but it will take a real catalyst to break the July high near 0.6800 and that leaves a thin risk-reward now, if any.

This article was written by Adam Button at www.forexlive.com.