Australian dollar price forecast October 13 2020| AUDUSD fundamental analysis

2020-10-13

Aussie is a new victim of China. Forecast as of 13.10.2020Dmitri Demidenko

Will China’s revenge and the yuan’s drop discourage the AUDUSD bulls? Will the Aussie resume growing? Let us discuss the AUD prospects and make up an [AUDUSD][1] trading plan.

Monthly Australian dollar fundamental analysis

Sometimes, the Predator turns into the Prey, and the Prey, on the contrary, becomes the Predator. During the time of the US-China trade wars, the US looked as an aggressor attacking a victim, which was China. China couldn’t adequately retaliate. US import tariffs pressed down China’s exports while selling off China’s Treasury stocks would hardly have been that effective. China was afraid of capital outflows, so it had to make concessions. Now, the victim has recovered and is looking for prey among weaker countries.

Financial Times, referring to the sources familiar with the matter, reports that Chinese power stations and steel mills have been verbally told to immediately stop using Australian coal. Coal is one of the primary components of Australia’s exports. China seems to be a vindictive country. It hasn’t forgiven Australia for the allegations to the COVID-19 laboratory origins, expressed a few months ago. The prey turned out into a predator. Will China continue retaliatory measures against Australia?

This time, Canberra has nothing to respond with. The share of Australia’s exports to China is about 40%, China’s exports to Australia are less than 2%. The trade war hasn’t yet started, but there is already the winner. The problems with the Australian coal exports and the yuan’s drop started an AUDUSD correction down. The AUD bulls used to seem invincible before. Australia’s economy was supported by several factors. The iron ore prices rose. China’s economy, being one of the key trade partners of Australia, was recovering rapidly. The [AUDUSD][1] rose by 31% from the low hit in March.

Dynamics of AUDUSD and iron ore prices

Source: Bloomberg

The AUD rise resulted from the rapidly growing US stock indexes and the global economic recovery in the third quarter. However, the [AUDUSD][1] rally will continue so fast in the next six-nine months. China’s PMI slows down, the US epidemiological situation is still difficult, the euro area faces the second wave of the COVID-19 pandemic. Furthermore, China attacks Australia, so it is natural that Aussie buyers are discouraged. The median gauge of Bloomberg’s experts for the AUD is $0.72, which corresponds to the current levels.

Nonetheless, there are always two currencies in a currency pair. According to Goldman Sachs, a ‘blue wave’ in the USA (Democrats take control of both the White House and the Congress after the election on November 3) and positive news about the coronavirus vaccines should send the USD down to the lows recorded in 2018. UBS and Invesco share a similar opinion. They recommend their clients to sell the dollar as Joe Biden’s rating grows. Hedge funds seem to follows such ideas.

Dynamics of USD and US dollar speculative positions

Source: Bloomberg

Monthly [AUDUSD][1] trading plan

I believe Beijing and Canberra will solve political problems, the yuan will resume its rally, and the Democrats will win in the elections. In this scenario, it is still relevant to buy the [AUDUSD][1] on the corrections down. The medium-term targets are at 0.745 and 0.762.

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Price chart of AUDUSD in real time mode

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