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AUD/USD forecast for 25.05.2020

May 25, 2020

May 25, 2020

Forex is exiting lockdownDmitri Demidenko

Enter trades on G-10 currencies according to the speed of their

economic recovery

The major Forex driver most of the time is the monetary policy of central banks that serves as a kind of indicator representing a state of an economy. However, in 2018-2019, the major market driver was trade wars, in 2020, it is the pandemic. Big traders have to correct their investment strategies. They, first, bet on countries suffered the least from the coronavirus. Next, they considered the ability of the economies to recover faster than their rivals. How are things going in the G10 countries?

According to Bloomberg Economics, an increase in the lockdown stringency by 10 points results in a 4% drop in economic activity. If the lockdown is strict, it is more difficult to exit it as the fear of infection is great. On the contrary, if the measures limiting the activity are less serious, people are getting used to fear gradually. Therefore, the countries that closed the smaller part of their economy can expect a quicker GDP rebound than their rivals. Their currencies are likely to be strengthening.

Lockdown stringency in different countries

![LiteForex: AUD/USD forecast for 25.05.2020][1]

Source: Bloomberg

Based on the lockdown stringency, I can suggest that the US economy should rebound sooner than the Spanish or French, but slower than the German GDP. I could presume that Germany will pull the euro-area along, like a locomotive. However, its power won’t be enough to outperform the USA. After all, we don’t have to create EUR/USD trading strategies based on the exit from the lockdown by different countries. There are other trading instruments. For example, there are CAD and AUD.

Unlike the Fed and the ECB, the fiscal stimuli in Canada and Australia look much smaller. The BoC launched the QE worth CA$300 billion ($216 billion). The RBA merely started the yield curve control policy and lending programs worth AU$90 billion (59 billion). Furthermore, Philip Lowe says the interest rates are unlikely to go below zero, as the side effects will be stronger than the benefits. Both the Bank of Canada and the Reserve Bank of Australia follow the Fed’s path, which is now sticking to a wait-and-see approach. The Fed is willing to first assess the effect of the measures taken already, and only after that, it should discuss a possible expansion of the monetary stimulus.

Dynamics of asset purchases by G-7 central banks

![LiteForex: AUD/USD forecast for 25.05.2020][2]

Source: Bloomberg

The ECB, on the contrary, signaled its willingness to boost the QE pace in June. Besides, the lockdown in Europe is stricter than in Canada or Australia. Therefore, it seems relevant to sell the [EUR/AUD][3] and the [EUR/CAD][4] on the breakouts of the supports at 1.655 and 1.509. It will be relevant to buy the [AUD/USD][5] and sell the [USD/CAD][6], using the e[xcellent trading services and terms offered by LiteForex][7], with the middle-term targets at 0.69 and 1.37 if the US stock indexes continue rallying up and there is not a new round of the US-China trade war.

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Price chart of AUDUSD in real time mode

![Forex is exiting lockdown][10]

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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