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The Australian dollar hit parity against the US Dollar as a downbeat speech by US Federal Reserve Chairman Ben Bernanke sunk the USD against major forex counterparts. Bernanke’s speech highlighted factors such as “a painfully slow recovery in the labor market” placing clear pressures on US economic recovery. He openly stated that Federal Open Market Committee (FOMC) objectives pointed to “a case for further action”—a not-so-veiled reference to further Quantitative Easing and a clear catalyst for US Dollar weakness.

Australian Dollar traders immediately pounced on broader USD weakness to drive the AUDUSD exchange rate to parity for the first time since 1983. The antipodean currency has been on an impressive uptrend amidst a commodity-driven economic boom in the domestic economy, and the lure of high Reserve Bank of Australia interest rates has likewise boosted demand for Aussie dollars against their low-yielding US namesake.

Australian Dollar/US Dollar Exchange Rate Hits Parity

Australian_Dollar_Parity_US_Dollar_body_Picture_3.png, Australian Dollar Hits Parity Against US Dollar as Bernanke Tips Easing

Source: FXCM Strategy Trader

Further outlook will most likely depend on the trajectory of highly-correlated S&P 500, as the link between the AUDUSD and the US equity index trades very close to a record-high. Currently buoyant equity markets certainly support the case for speculation-driven Australian Dollar gains against the safe-haven US Dollar.

Australian_Dollar_Parity_US_Dollar_body_Picture_4.png, Australian Dollar Hits Parity Against US Dollar as Bernanke Tips Easing

On a purely technical level, the Australian Dollar remains in its most overbought territory on a weekly basis since late 2009. Though markets can and do remain heavily overbought or oversold for extended periods of time, such one-way price action warns that the risk of material correction is high.

Australian Dollar at Most Overbought in 11 Months

Australian_Dollar_Parity_US_Dollar_body_Picture_5.png, Australian Dollar Hits Parity Against US Dollar as Bernanke Tips Easing

Source: FXCM Strategy Trader

Written by David Rodríguez, Quantitative Strategist for http://www.DailyFX.com/