“Do you come from the land down under, where women glow and men plunder?” The lyrics from the “Men at Work” established an Aussie stereotype of a fun-loving, carefree people, enjoying their beer while telling Americans that they work to live, the reverse of their stereotype of us. However, for those attuned to events below the equator, Australia has been a rare success story for the past eighteen months.

The Australian economy has actually outperformed many around the globe. GDP was up 2.7% in 2009, and will expand another 2% over the first half of 2010. Unemployment is half of what other countries are experiencing, machinery and equipment spending is also up, and China’s demand for resource exports remains unabated. The Central Bank has raised interest rates, and it appears that Australia may have skirted the global recession that has gripped Europe and America.

These excellent performance metrics led to an Aussie Dollar strengthening versus the U.S. Dollar for most of last year, but a classic “double top” has formed in the AUDUSD chart over the past six months.

Note: Past performance is not indicative of future results.

This chart formation is indicative of an impending decline to come. When the AUD pierced the 0.86 resistance level a week or two back, it promptly fell to the 0.8066 zone, its lowest point in ten months, thereby confirming the voracity of the chart signal. It has bounced back in recent days, and analysts expect consolidation above the 0.8310 level. If a downward movement persists, then resistance levels will drop to the 0.8230 to 0.8140 ranges.

Why is the Aussie Dollar being pounded when country fundamentals are so strong? The answer to that question involves a number of factors. The Australian economy has heated up, and government officials are moving quickly to insulate the country from the debt issues in Europe. Stimulus spending has been curtailed. New budgets contain a surplus as officials move to make Australia’s debt peak at 6.1% of GDP, less than one tenth of the average level of advanced economies including the U.S., Europe and Japan. Property prices have actually risen by 20%, as optimism has spread amongst consumers and businessmen alike.

The Reserve Bank of Australia has also made six rate increases in the past seven months as the government withdrew monetary stimulus. Higher rates of return may have attributed to the AUD’s recent demise. Analysts have speculated that a serious “carry-trade” overhang, some officials estimating around $2 trillion, has bolstered recent turmoil in foreign currency markets. Many hedge funds and traders have used the Dollar and Yen as the “base” currency and invested where rates were higher, typically in Australia and New Zealand or even India this time around. A strengthening U.S. Dollar would lead to the unwinding of many un-hedged and unprofitable AUD positions.

The Australian government has also proposed new taxes on mines and tobacco to help reduce its debt. Major exporters of iron ore and coal are protesting loudly. Parliament must still approve the new budget proposals, which may have contributed uncertainty to the mix. No matter the outcome, Australia’s fundamentals are strong and far from strange. Our country should be so lucky. Look for recent weakness in the Aussie Dollar to reverse over the months to come when sanity and stability returns.