The Australian dollar has fallen to its lowest levels of the year but it’s very tempting to look for a way to get long.

AUD/USD broke below 0.8911 but touched off trendline support on the hourly chart and has since made a slight recovery. The hourly RSI has broken below support at 25 and is into severely oversold territory at 20.87.

In the short-term we expect to see an oversold correction but the trend is clearly down in AUD/USD.  The problem for Australia, despite bustling domestic economic growth, is that it is tied very closely to China. The market has recently turned against China after the PBOC took some steps to cool off the economy. A cooler China means a cooler Australia. Compounding the losses is the general risk aversion (stocks look ugly) and worries about sovereign credit.

Still, it’s hard to resist the temptation to catch the falling knife. AUD/USD has fallen in 8 of the past 9 sessions and the daily RSI is nearly as oversold as the hourly.

In the medium term, we would like to be short AUD/USD. Risk has been underpriced for months and it’s sure to come back. Not only that, there is a very clear triple-top on the daily AUD/USD chart and we don’t want to be agressively long until the top at 0.9402 breaks.

But if we had to make a trade in AUD/USD at the moment, it would be as a buyer. This pair is badly oversold by any measure. We see very little risk of a plunge in the pair and even if it did, we would be happy to get long at support at 0.8750. On the other hand, a snapback rally is very much on the table. Look to get long on a rebound to 0.9000.