Why a Dollar Correction? Why Now?

By John Ross Crooks III

Since July, a few days of indecision strung together have been the only reprieve from this powerful U.S. dollar rally. So what’s going on today that might signal the start of something bigger?

Well, it’s a little something we like to call adverse price action. In other words, price action inconsistent with recently released economic matters. In this case, we learned that the Reserve Bank of Australia got a little rambunctious and cut interest rates by more than expected. Instead of slashing their benchmark rate by 50 basis points, they went for 75 basis points.

Typically, the foreign exchange market is dominated in the near-term and long-term by interest rate dynamics. Lower interest rates, or expectations for interest rates to be cut, are negative for a currency; and vice versa.

But today, after the RBA’s earlier decision, the Australian dollar is rallying sharply. On a 60-minute chart, you can see that the Aussie popped above a near-term resistance level:

The Aussie Dollar Is Ready for a Breakout!

A breakout from these levels might offer up enough steam to move the Australian dollar higher for a while longer. After all, it has been beaten down as much or more than most other major currencies paired against the buck.

But it’s not only Australia’s dollar that’s pushing higher versus the greenback today. The entire pack, with exception of the yen, is considerably higher.

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