Forecast for AUDUSD for 22 July 2020

July 22, 2020

Forecast for AUS/AUD: Aussie holds its tongueDmitri Demidenko

Fundamental oil forecast for Australian dollar for today

Mutual love is wonderful! I’d say that out of all G10 currencies, the Australian dollar has loved me the most in response to my warm feelings. I recommended buying it in [March][1], [April][2], [May][3], [June][4] and [July][5]. Since then [AUD/USD][6] quotes have grown 21% and came close to a target of 0.72. It’s time to revise forecasts as the circumstances changes and many bullish drivers don’t look as bright as they used to.

Looking back from a distance of a few months, a bet on a better epidemiological situation, a shallow drawdown, a fast recovery of Australia’s GDP and China’s support seems to be a win-win step. However, the Aussie needs to consider some pitfalls when going with the tide. Canberra’s accusing Beijing of letting out the coronavirus of a laboratory resulted in import taxes on its agricultural production. The consequences might have been more severe if Australia hadn’t shut up in time. But now that China’s demand for energy resources and metals is high, even the second pandemic wave doesn’t look terrifying. The exports smooth the recession and help GDP recover.

Resources became a bright spot in Australia’s economic history. The sector managed to keep the employment rate at the pre-crisis level (240 thousand people). Exports of iron ore alone are close to reaching the level of AU$100 billion while the total export volume of energy resources and metals is AU$300 billion. Even if Beijing may want to break up with Canberra amidst worsening diplomatic relations, there’s no one to take its place at the moment. Especially now that Brazil’s epidemiological situation is so bad.

Important consumers of Australian energy resources and metals

![LiteForex: Forecast for AUDUSD for 22 July 2020][7]

Source: Financial Times.

Besides its good old trump, China, the Australian dollar has got some new ones. RBA’s sharp rate cut made AUD one of the main funding currencies, together with the Canadian dollar. Despite [AUD/USD][6]’s bullish trend, carry traders benefit from trading the Aussie because of its high correlation with developing countries’ currencies: it decreases volatility. As a result, Citigroup’s positioning indicators say that speculative shorts in AUD are growing.

Dynamic of speculative positions in Canadian and Australian dollars

![LiteForex: Forecast for AUDUSD for 22 July 2020][8]

Source: Bloomberg.

The status of a funding currency means that [AUD/USD][6] bulls don’t have to worry about a possible correction of global stock indexes which may force speculators to close their positions. The Aussie’s stability during the retracement of [S&P 500][9] in the second half of June confirms that.

Canberra understood at the right time what worsening relations with Beijing may mean to it. That allows the Australian dollar to continue using the recovery of China’s economy as a trump. The AUD will be outdoing developing countries’ currencies as long as vaccine rumours remain only rumours, and it will continue growing against the greenback amidst a strong risk appetite. In order to buy [AUD/USD][6] with targets at 0.75 and 0.79 in 6 and 2 months, a correction of [S&P 500][9] would be necessary.

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Price chart of AUDUSD in real time mode

![Forecast for AUS/AUD: Aussie holds its tongue][12]

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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