Is the Australian Dollar Hurting the ASX 200?

• Both the ASX 200 and the AUD are in a well-defined range.

• The Federal Reserve is somewhat to blame.

• Risk appetite continues to be positive, but not overly aggressive.

The Australian dollar has been very choppy, and it is not lost on most market observers that the Australian Stock Exchange has behaved very much the same way. Keep in mind that Australia is a highly export driven economy, so this does make a certain amount of sense. As the Aussie dollar rises in cost, it makes Australian exports, especially commodities, much more expensive for other parts of the world.

This is compounded buying a lot of the smaller Asian economies being so heavily depended on Australia and hard commodities, and therefore it has a bit of a feedback loop attitude attached to it. It is worth noting that the ASX 200 continues to struggle to get anywhere above the AU$7900 level. This has been like a brick wall for the market since early March, and although we did bounce a bit on Monday from the 50-Day EMA, it does not look like we necessarily have the momentum to make this happen anytime soon.

When Trading the ASX 200, Do Not Forget FX

As reference previously, the Australian dollar has a major influence on what happens with the stock market. After all, most central banks around the world are in the process of “racing to the bottom”, to stimulate their own exports. However, the Australian dollar has steadfast stayed in the same range since the beginning of the month of March. We are 2 months down the road and have stayed within a 125 pip range.

Risk Appetite

Risk appetite of course is a major influence as well, and it’s probably worth noting that a lot of indices around the world are currently stalled, although they are most certainly positive. That is one way that you can look at the ASX 200, but the currency headwinds are probably worth paying close attention to in the short term.

The DAX, the CAC, the MIB, and US indices all are near all-time highs, but have seen a little bit of choppy and sluggish behavior recently. In this environment, there’s no reason to think that Australia will be any different. In other words, this is a market that probably continues to be a “buy on the dips” market, but it doesn’t necessarily look as if it has the momentum to break above the AU$7900 level. If we were to do so, that could be a signal that we are going to go much higher, and it could be the beginning of the next leg in the bullish run.

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