This “Stock Market Sensitive” Currency Could Tumble Along with Stocks Soon!

If there was every a “stock market sensitive” currency, it’s the Australian dollar.

You see, when traders/investors are willing to stick their necks out enough to get into stocks, they are also willing to go into riskier, higher yielding currencies at the same time.

In fact, you can see how closely the Aussie (AUD/USD) tracks U.S. stocks by checking out the chart below. Click on the chart to enlarge it.

The S&P 500 is Overdue for a Sizable Correction…And So is the Aussie Dollar!

Then when you apply Elliott Wave analysis, you can see that the S&P 500 has already completed its “5 waves up” pattern. Now it’s time for a “3 waves correction” downward against that uptrend. In fact, you can look at the yellow arrow on the chart to see how this may play out.

While the overall, long-term uptrend in stocks is probably not over…a major correction is still “in the cards” for the near-term. As U.S. stocks correct severely in the coming weeks to months…the Aussie dollar will follow suit and do the same.

As investors bail out of riskier assets and scamper off to the sidelines, it will actually benefit the U.S. dollar at the same time.

Oh sure…in the end, the buck is toast, but our dollar does catch some occasional breaks along the way, particularly when stocks fall and investors run towards defensive, risk adverse assets like the greenback.

Both of these dynamics at work at once really “doubly” hammers the AUD/USD pair and causes it to tumble lower.

Long-term, Australia still has great fundamentals and its dollar will do great over time. But anything can get overdone in the near-term and right now the Aussie dollar and the S&P 500 are both poised to tumble very soon.

Then once the dust settles and both of these have had sizable corrections…their long-term uptrends will likely resume. But not until its shaken out the “weak hands” in the market first.

Sean Hyman