Australian dollar price forecast November 16 2020| AUDUSD fundamental analysis

2020-11-16

China targets the Aussie. Forecast as of 16.11.2020Dmitri Demidenko

The media are crazy about the trade battle between Australia and China. However, the trade war is not unleashed at the full scale. Will it continue? Let us discuss the Australian dollar outlook and make up an [AUDUSD][1] trading plan.

Fundamental AUDUSD forecast for three and six months

The [AUDUSD][1] bulls worry because of the RBA massive fiscal stimulus and the trade battle’s escalation between China and Australia. After the pair had reached the targets at 0.729 and 0.733 indicated in the [previous analytics][2]. I believe the fears are exaggerated. The fact that Beijing will target Australia because of the accusations of the COVID-19 laboratory origin is not the reason to sell the Australian dollar. At least now.

According to Goldman Sachs, the optimistic outlook for the global economic recovery should support cyclical assets, including the Aussie and the Loonie. The company suggests selling the US dollar against a basket of cyclical currencies, as the adaptive monetary policy will support the risky assets. The growth in the commodity prices allows the Aussie and the Loonie to perform better than other G10 currencies. Another growth driver will be the expansion of the US fiscal stimulus, although it won’t be as great as it could be in the case of ‘blue wave.’

On the other hand, Chinese officials often refuse to answer high-ranking calls from Australia. The state-run Chinese newspaper China Daily announced that Australia would pay for the accusations of the COVID-19 laboratory origin and the collusion with the USA. China has imposed import duties on Australian barley, limited purchases of beef, and launched an anti-dumping investigation into wine imports. In fact, Australia’s exports worth AU$252 billion are taxed while the total volume of mutual Australia-China trade is AU$252 billion. China won’t increase tariffs on the major components of imports from Australia, including iron ore imports worth more than AU$100 billion. The growth of iron ore prices will support the [AUDUSD][1] rally.

Dynamics of AUDUSD iron ore prices

Source : Trading Economics

Due to the favorable foreign environment, the Aussie has ignored the expansion of the RBA monetary stimulus. Philip Lowe and the RBA officials decided to cut the cash rate from 0.25% to 0.1% and boost the QE by AU$100 billion at the November meeting. According to Westpac, as a result of the program, the RBA’s assets will increase to AU$550 billion, which is 27% of Australia’s GDP. The Fed’s balance sheet, for example, is about 34% of US GDP. Therefore, the volumes of monetary expansion of the two central banks are comparable. Besides, the FOMC officials believe that the monetary policy is correct while the RBA leaves the door open for further monetary easing. Theoretically, this fact could press the [AUDUSD][1] down.

Dynamics of global central banks’ balance sheets

Source : Bloomberg

[AUDUSD][1] trading plan for 3 and 6 months

In my opinion, if the chain “vaccine - improvement of the epidemiological situation - the victory over the pandemic - global GDP recovery” works out, the RBA won’t have to boost the monetary stimulus. The increase in the demand for commodity market assets and improvement of the global risk appetite will support the [AUDUSD][1] rally towards 0.75 and 0.78 in three and six months unless there is no full-fledged trade war between China and Australia. I recommend buying the AUDUSD.

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Price chart of AUDUSD in real time mode

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