Aussie dollar provides potential clues to impending market rally…

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Currency trends otell us something about the mood of global traders, and which way they’re starting to lean. In the ongoing battle between “risk-on” and “risk-off” trades, one of the markets worth keeping an eye on is the Australian Dollar. For a number of reasons, global traders buy the Aussie when they’re turning more optimistic on global stocks and commodities. That’s why the recent upturn in the Aussie Dollar may be a sign of a bit more optimism among global traders. Chart 1 plots the Australian Dollar (XAD) against the U.S. Dollar over the last eighteen months. The XAD has been trading sideways over the last year. After holding above its October low, however, the XAD has just reached a new three-month high against the U.S. currency. It’s done even better against the Euro. Chart 2 shows the XAD soaring to a record high against the Euro. Chart 3 shows it also bouncing against the Japanese Yen.

As with our post yesterday on the excessively pessimistic sentiment amongst traders and fund managers, this could also be another signal of positive times ahead (although it’s hard to believe on a morning like today!).

 

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