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Price forecast for Australian dollar as of 23 September 2020

2020-09-23

2020-09-23

Commodity currencies outdo the dollar. Forecast for AUDUSD, NZDUSD and USDNOK as of 23.09.2020Dmitri Demidenko

The second pandemic wave and the USD index’ previous reactions to US presidential elections breathed new life into the greenback. Will it be able to break out its downtrend against the major currencies, or is it a mere correction?

Monthly fundamental forecast

In 2018-2019, the markets held breathing, watching trade wars, but in 2020, it’s the pandemic that rules Forex. Where is the epidemiological situation better? Which country will suffer the least from a lockdown? Whose economy will recover faster? Those bets worked out regularly. The situation around COVID-19 is getting worse, and it makes investors rush to the US dollar. It happened in spring, when macrostatistics on other countries and competitive banks’ actions were ignored. It may happen again amid the second coronavirus wave and growing risks of the global economy’s double recession.

The Dollar smile theory seems to have been thrown into a dustbin. Based on that theory, the dollar is supposed to grow amidst a higher demand for safe haven assets in a crisis situation, fall on the Fed’s aggressive monetary expansion, and finally grow again amid the US economy’s outperformance.  However, the second wave of the pandemic in Europe makes the theory relevant again, and the USD index is supposed to grow faster than expected. What’s more, according to SEB’s research, the dollar tends to appreciate within 100 days following US Presidential elections in nine cases out of ten. That makes its fans even more optimistic.

USD evolution following US presidential elections

Source: Bloomberg.

When everyone else is focused on the dollar, ignoring other factors, we may wonder: what should we sell then? The answer lies in Bloomberg’s analysis of G10 currencies’ sensitivity to the USD’s index fall. The Norwegian krone and the British pound were the most vulnerable to the greenback’s appreciation, while the Canadian dollar and the Japanese yen were the most resistant.

Currency pairs’ reaction to moves in the USD

Source: Bloomberg.

I think we shouldn’t fall into panic. What do you personally think about the future? Will the global economy face new lockdowns and double recession, or will the second wave of COVID-19 be less damaging than the first one? Health care workers got a priceless experience and are now prepared better than before; a mass vaccination campaign is coming.  My glass is half full, and I think the current USD rally is a correction.

At the end of the day, the currencies closely connected to China will benefit from this situation the most: the Chinese economy is expected to rise 1.8% in 2020, according to OECD. The yuan starts playing a more important role in the Forex market, which is proved by its growing correlation with the G10 currencies.

Yuan’s correlation with G10 currencies

Source: Bloomberg.

Weekly and monthly trading plans for G10 currencies

So, the global epidemiological situation’s further aggravation will allow us to buy [USDNOK][1] and sell [AUDJPY][2], [AUDCAD][3], [AUDUSD][4]  and [GBPUSD][5]. Nonetheless, the Australian dollar’s drawdown to supports at $0.695 and $0.685 will be a good opportunity for opening long positions in the long term. The same applies to the NZ dollar: after [NZDUSD][6]’s correction to $0.648 and $0.64, we can buy it cheaper.

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Price chart of AUDUSD in real time mode

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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