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AUD/USD forecast for 04.04.2020

May 4, 2020

May 4, 2020

Aussie smells the problemsDmitri Demidenko

A new round of trade wars may break the plans of the AUD/USD bulls

Has the idea of a faster recovery of China’s economy than that of the USA and Europe, suggesting one should bet on the currencies of the counties having close trade links with China, failed? In [late March][1] and [early April][2], I strongly recommended buying the Australian dollar despite the opinion of the majority that suggested a gloomy outlook for the Australian economy and a further easing of the RBA’s ultra-easy monetary policy. Since then, the [AUD/USD][3] pair has risen by more than 6 figures. However, Trump’s attacks against China have broken the plans of the AUD buyers.

The US president obviously wants to win the upcoming presidential election in November, however, the recession and the crash in the stock market create strong barriers. If the S&P 500 trend has reversed up amid joint efforts of the Fed and the US administration, the V-shaped recovery of the US GDP could hardly be expected. Trump urgently needed to find someone to put the blame on, and he targeted China. The escalation of the US-China trade war will not only weigh on the global trade that is already rather weak, but it will also press down China’s economy and the yuan, which China’s government is struggling to stabilize now. The yuan’s drop amid the possibility of new import tariffs imposed by the USA send the [AUD/USD][3] down.

Dynamics is AUD/USD and USD/CNY

![LiteForex: AUD/USD forecast for 04.04.2020][4]

Source: Trading Economics

Yes, the Aussie looks vulnerable form the fundamental point of view. According to Bloomberg, there should be three consecutive quarters of declining gross domestic product, with Australia’s economy contracting by 9% from the fourth quarter of 2019, before a gradual recovery begins in the fourth quarter of 2020 (6% in 2020). It shouldn’t reach pre- outbreak levels of activity until the second half of 2022. Since December 2019, the number of unemployed Australians increased by 800,000 to 1.3 million-1.6 million. This is likely to result in the unemployment rate increase from 5.2% to 11% in the next few months. Such a level of unemployment was recorded during the last economic recession in the early 1990s.

Dynamics of Australia’s GDP

![LiteForex: AUD/USD forecast for 04.04.2020][5]

Source: Bloomberg

However, the same situation is in most countries fighting with the coronavirus outbreak, and Australia’s fiscal stimulus (about 16% of GDP) is one of the biggest in the world, which suggests the economy’s rebound. The RBA didn’t take such aggressive measures as the Fed, which had launched the unlimited QE. It targeted the yield curve, like the Bank of Japan, which allowed it to stop buying out assets in the sixth week (the total purchase volume is just about AU$50 billion).

To sum up all the above, the hopes for the V-shaped recovery of China’s economy, a huge fiscal stimulus, and a modest expansion of the RBA’s balance sheet pushed the [AUD/USD][3] up to its seven-week highs. However, the potential escalation of the US-China trade war changed the balance of power in the currency pair. If Donald Trump follows through the threats and starts actions, the [AUD/USD][3] should be falling deeper if the support at 0.635 is broken out. Otherwise, if the threat is not fulfilled, my [forecast][2] suggesting the Aussie’s growth to $0.675 and $0.69 should come true.

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Price chart of AUDUSD in real time mode

![Aussie smells the problems][8]

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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  1. www.liteforex.com/blog/analysts-opinions/aussie-meets-qe/
  2. www.liteforex.com/blog/analysts-opinions/will-the-aussie-get-the-better-of-bears/
  3. my.liteforex.com/trading/chart?symbol=AUDUSD&returnUrl=true
  4. cdn.liteforex.com/cache/uploads/blog_post/fundamental_analysis/audusd-usdcny-04-05-20.jpg?w=30&s=7b9e843d2b794b6eac46c0af30874a9e
  5. cdn.liteforex.com/cache/uploads/blog_post/fundamental_analysis/australia-gdp-04-05-20.jpg?w=30&s=42325126b0a186eba7f697aff49b643f
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  8. cdn.liteforex.com/cache/uploads/blog_post/fundamental_analysis/liteforex-blog-audusd-04-05-20.jpg?q=75&w=1000&s=8f3536c2c7ff32271aace287dd1a05ff