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Fundamental and technical analysis of AUDUSD

August 25, 2020

August 25, 2020

Analysis of AUDUSD and forecast for the AUD priceMikhail Hypov

We continue to examine the most popular currency pairs, and today’s article subject is the Australian dollar.

The article covers the following subjects:

Comparison with the previous forecast

About three months ago, I [introduced][1] you to this trading instrument and reviewed Australia’s economy.

![LiteForex: Forecast for the Australian dollar: Fundamental and technical analysis of AUDUSD][2]

I made a cautious long-term forecast of AUDUSD’s consolidation within a triangle and forming of a solid foundation for a trend reversal.  The key level was located at 0.7 USD in that scenario. The trading plan was meant for a few years, but the market behaved in a different way.

![LiteForex: Forecast for the Australian dollar: Fundamental and technical analysis of AUDUSD][3]

The long-term targets were reached within a few months. Obviously, the short-term and the long-term scenarios need to be revised.

Fundamental analysis of AUDUSD

It turned out that providing fundamental analysis of the AUD is the hardest thing because there are too many factors that affect the rate.

First factor: stock market’s and economy’s states

In my previous article, I mentioned the Chinese economy’s strong influence on the Australian dollar, since China is Australia’s main trading partner. We know that growing exports increase demand for national currency. Global economists agree that China will be the first country to combat the crisis. This will be a positive factor for the whole region’s economy, and the Australian one in particular. Australia might cope well with the crisis and support the national currency’s rate given a growing demand for raw materials. On the other hand, Australia’s economy is still in a recession.

![LiteForex: Forecast for the Australian dollar: Fundamental and technical analysis of AUDUSD][4]

According to the Australian Bureau of Statistics’ preliminary data, the country’s GDP is expected to fall 0.3% in 2020. The deepest drawdown took place in Q2 and cost 8% of GDP to the economy, presumably. ![LiteForex: Forecast for the Australian dollar: Fundamental and technical analysis of AUDUSD][5]

Facing the challenges, the Australian government developed a standard relief package that implied a soft monetary policy. The RBA dropped the interest rate from 0.8% in February to 0.25% in April.![LiteForex: Forecast for the Australian dollar: Fundamental and technical analysis of AUDUSD][6]

The chart above shows the [ASX200][7] index and the AUDUSD pair.  The stock index and the AUD collapsed at the same time and started recovering at the same time too. One may think these two indicators are closely related, with a correlation coefficient close to 1. In fact, it’s not true.![LiteForex: Forecast for the Australian dollar: Fundamental and technical analysis of AUDUSD][8]

On a larger scale, there’s no stable correlation. AUDUSD’s independence from the stock market has been obvious from 2012. Thus, the latest growth isn’t related to economic growth or the Australian stock market’s bullish sentiment.

Second factor: gold price

One may be surprised at the fact that the AUD is a commodity currency because of the country’s commodity exports. Historically, the AUD rate has been associated with the [gold][9] price. In fact, it’s a mere myth that I’m going to unveil now. Indeed, Australia is the world’s second biggest gold producer and the fifth biggest gold exporter. However, the Australian gold export share is just 6.5% of the total export volume.

![LiteForex: Forecast for the Australian dollar: Fundamental and technical analysis of AUDUSD][10]

The charts of gold and the Australian dollar are shown above. Up to 2009, the correlation index did show that these two instruments’ evolutions are similar. The correlation totally disappeared in 2009 and hasn’t been registered ever since.

![LiteForex: Forecast for the Australian dollar: Fundamental and technical analysis of AUDUSD][11]

From 2019, [XAU][9] and AUD have been moving in opposite directions. Unless we knew it, we could think the AUD consolidated amidst rising gold prices as they have been in an uptrend from April. ![LiteForex: Forecast for the Australian dollar: Fundamental and technical analysis of AUDUSD][12]

![LiteForex: Forecast for the Australian dollar: Fundamental and technical analysis of AUDUSD][13]

To debunk entirely the belief that the gold rate influences the Australian dollar, I suggest comparing three charts: the RBA’s interest rate, the gold rate, and the [AUDUSD][14]’s rate. I marked three periods in those charts:

  1. 2001-2008, the period of recovering after the dotcom crisis.  The economic growth speeds up inflation and raises prices of commodities and metals, including gold. The Reserve Bank of Australia raises the rate for inflation targeting, which finally raises the national currency rate.
  2. 2008-2009, the period of mortgage lending crisis that affected the whole world. Stock markets and commodity markets collapse. The Reserve Bank of Australia cuts the interest rate from 6.75% to 3.5%, and the Australian dollar falls too.
  3. 2009-2012, a new recovery period. The same factors start working here: economic growth -> inflation growth -> higher demand for gold and higher interest rate -> consolidation of the national currency.

So we see, neither [gold][9] price nor gold demand are related to the AUD rate.

Show this article to anyone who disagrees :)

The correlation between XAUUSD and AUDUSD is temporary and linked to general macro-economic factors that affect both the currency market and the market of metals. It’s here that we could stop searching for the main factor that affects the Australian dollar. It’s the RBA’s interest rate!  But let’s have a look at AUDUSD’s dynamics in the past month.

![LiteForex: Forecast for the Australian dollar: Fundamental and technical analysis of AUDUSD][15]

It’s been up since the middle of March.![LiteForex: Forecast for the Australian dollar: Fundamental and technical analysis of AUDUSD][16]

At the same time, the Reserve Bank’s rate remained at its historic lows. With a refinance rate that low, the AUD rate could have dropped to the bottom too, but we see it growing fast. So, there must exist at least one more serious factor that affects Australia’s dollar.

Third factor: the USD index

We have examined the factors that are directly connected with Australia and influence the AUD, but we haven’t covered the factors that affect the USD itself.

![LiteForex: Forecast for the Australian dollar: Fundamental and technical analysis of AUDUSD][17]

The chart above shows the AUDUSD rate in the upper part and the USD index in the lower part. We see that their evolutions mirror each other.![LiteForex: Forecast for the Australian dollar: Fundamental and technical analysis of AUDUSD][18]

To check the stability of this connection, let’s make a correlation analysis on a longer time frame. The 40+ year history of these two instruments’ evolution is shown in the chart above. The correlation indicator shows that the coefficient of correlation between DXY and AUDUSD has been systematically negative since 2000, and rarely has a value other than minus 1.

Based on empirical evidence, we proved that the main factor in the AUDUSD evolution is the USD itself. Thus, the AUD rate doesn’t consolidate because of the Australian economy’s recovery or growing gold prices. AUDUSD grows because of a weaker dollar. To make the correct forecast for AUDUSD, we need to make the correct analysis of the USD index. That’s what I’ll start my next analysis with on Tuesday. Subscribe to the blog and bookmark this article, not to miss my follow- up analysis! It will be interesting.

Good luck and profits, everyone!

Yours,

Michael @Hypov

P.S. Did you like my article? Share it in social networks: it will be the best “thank you” :)

Ask me questions and comment below. I’ll be glad to answer your questions and give necessary explanations.

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Price chart of AUDUSD in real time mode

![Analysis of AUDUSD and forecast for the AUD price][21]

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/audusd-fundamental-and-technical-analysis-short–and-long-term-forecasts/
  2. cdn.liteforex.com/cache/uploads/blog_post/cryptocyrrency/hyipov/2020.08.25/AUDUSD_1.jpg?w=30&s=718f9bdaa8001c245ef7bb0149c97568
  3. cdn.liteforex.com/cache/uploads/blog_post/cryptocyrrency/hyipov/2020.08.25/AUDUSD_2.jpg?w=30&s=b64f91c6f9de8fcbfa2885eb73819753
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  6. cdn.liteforex.com/cache/uploads/blog_post/cryptocyrrency/hyipov/2020.08.25/AUDUSD_protiv_ASX200_5.jpg?w=30&s=65d3c1f0f12c1cd5696e980b4438b73c
  7. my.liteforex.com/trading/chart?symbol=ASX200
  8. cdn.liteforex.com/cache/uploads/blog_post/cryptocyrrency/hyipov/2020.08.25/AUDUSD_protiv_ASX200_6.jpg?w=30&s=0d1d888fadaa073e0b69d6ef30dd75e4
  9. my.liteforex.com/trading/chart?symbol=XAUUSD
  10. cdn.liteforex.com/cache/uploads/blog_post/cryptocyrrency/hyipov/2020.08.25/AUDUSD_protiv_Zoloto_7.jpg?w=30&s=3e3f7d1d699a5e023d1d923ad7fe5250
  11. cdn.liteforex.com/cache/uploads/blog_post/cryptocyrrency/hyipov/2020.08.25/AUDUSD_protiv_Zoloto_8.jpg?w=30&s=fc7a63d67d5bd7aa9c1be01643193aa2
  12. cdn.liteforex.com/cache/uploads/blog_post/cryptocyrrency/hyipov/2020.08.25/procentnay_stavka_9.jpg?w=30&s=17976f6cf44296c193bac6bf2ba12069
  13. cdn.liteforex.com/cache/uploads/blog_post/cryptocyrrency/hyipov/2020.08.25/AUDUSD_protiv_Zoloto_10.jpg?w=30&s=3f4707290811f1976aa5e2df77a1f7cf
  14. my.liteforex.com/trading/chart?symbol=AUDUSD
  15. cdn.liteforex.com/cache/uploads/blog_post/cryptocyrrency/hyipov/2020.08.25/AUDUSD_11.jpg?w=30&s=0d1e966a0a45a4b8a53df1c393219cf3
  16. cdn.liteforex.com/cache/uploads/blog_post/cryptocyrrency/hyipov/2020.08.25/procentnay_stavka_12.jpg?w=30&s=ed0896be25c11cad795200711fb9ede8
  17. cdn.liteforex.com/cache/uploads/blog_post/cryptocyrrency/hyipov/2020.08.25/AUDUSD_protiv_DXY_13.jpg?w=30&s=8ee296de244789093d3ccecb962bb31c
  18. cdn.liteforex.com/cache/uploads/blog_post/cryptocyrrency/hyipov/2020.08.25/AUDUSD_protiv_DXY_14.jpg?w=30&s=90e269a3ba1e568135381cde078f15b2
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  21. cdn.liteforex.com/cache/uploads/blog_post/cryptocyrrency/hyipov/2020.08.25/AUDUSD_logo.jpg?q=75&w=1000&s=bff7e64cc73451be8a41ed1de0e5af64