Export Data Supports Australia's Rally

Australia experienced a positive start on this first day of March. The currency rallied in response to market moving news flowing out of the country, Asia, and many economists.

AUD began the trading day with a decline as China's PMI index reported growth in the country's manufacturing sector, but still was well below forecasts. Investors immediately turned attention to Australia and sold off the currency. The PMI index created this worry that China's industrial boom is slowing down, and Australia's exports are at risk. At this point, day traders took advantage of the sudden drop, but got out at the bottom to prepare for the day's increase.

We all know that China will continue to expand, and a PMI index says little about the long term outlook. It still showed growth; the fact that the numbers were under expectations just means that we over projected. Dantes Outlook posted an article about commodity currencies, and the fundamentals support the long term progression of the Ausie.

Thanks to the support of intelligent economists, the Australian Dollar rebounded throughout the day. At this point, traders needed real time alerts (perhaps a Bloomberg Terminal) to get right into action. The drop following the PMI announcement became an attractive bargain. The Australian Bureau of Agriculture spoke out and projected that despite PMI numbers, commodity sales may rise by 15% up to June 30, 2011. This sparked a reversal which was then fueled by expectations of an RBA (Central Bank) interest rate increase of 4%. This makes sense, because after reports of economic growth, the central bank usually responds to tame it with some monetary pull back.

So, today's lesson was that China still controls the global economy. Investors should hold on to AUD in anticipation of a possible interest rate hike, or to just profit from further increases.

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Events like this prove that investors should swing trade currencies-- hold a position lasting a few days to a few weeks...one month maximum. I would advice one week if you just trade off of news.

*The above chart shows the AUD performance today. Never mind the green arrows; I was just experimenting.