Forecast for AUD price for 2 December 2020

2020-12-02

The Aussie needs to pick its horse. Forecast as of 02.12.2020Dmitri Demidenko

Australia has been riding two horses simultaneously for decades. Now it’s time to choose between America and China. How will that affect the [AUDUSD][1]? Let’s check and make a trading plan.

Quarterly fundamental forecast for Australian dollar

If you make China your enemy, China will be your enemy. Beijing’s anger can’t stop since Australia accused it of the coronavirus’s alleged origin from a laboratory. Not only did China introduce import taxes on wine and other goods, but they also made so bold as to publish a provocative picture depicting an Australian soldier with a knife next to an Afghan child’s throat. That outraged the whole Green continent, but Canberra had to acknowledge it respected the Chinese people.

Australia has been riding two horses at a time for decades. It supported a strategic military alliance with the USA and developed economic relations with China. The 2018-2019 trade wars between Washington and Beijing made Canberra make a choice. So, it stated that the origins of COVID-19 must be investigated, and it signed a resolution on Hong Kong with the USA, Great Britain, New Zealand, and Canada - the other four members of the Five Eyes alliance. China was outraged: “No matter how many ‘eyes’ you have, be careful not to be poked and get blind by harming China’s sovereignty, security and development interests!”

Structure of Australian exports

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Source: Trading Economics.

China’s trade ministry has already targeted Australian barley, beef, and seafood. The wine got on that list in November. Chinese producers supposedly complained about foreign competitors that had increased exports from 5.7 million litres in 2015 to 12.1 million litres in 2019. As a result, Beijing introduced taxes, varying from 107% to 212%, and thus caused Australia’s exports damage worth AU$1.2 billion. It’s undoubtedly a drop in the ocean compared with the total trading volume of AU$252 billion, but the investors are concerned that the conflict won’t stop. As a result, the Aussie isn’t moving against the USD, in contrast to other global currencies.

The Reserve Bank thinks that the AUD rate could be higher if not for its titanic effort. Although using the Japanese experience of yield control, cutting the cash rate to 0.1 and extending QE by AU$100 billion could ruin any currency, the Aussie is still afloat.

Dynamics of Australian bond yields

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Source: Bloomberg.

If China hadn’t created extra difficulties for the Australian dollar, [AUDUSD][1] bulls would be more successful. Australia’s economy pulled itself out of recession in Q3, having grown 3.3%. According to RBA’s forecasts, GDP will grow in Q4 and increase by 5% in 2021. The question of negative rates introduction isn’t being considered, and the growth of global risk appetite creates “a fair wind” for the commodity market and currencies.

Quarterly trading plan for the [AUDUSD][1]

I think Washington-Beijing better relations under Joe Biden might put out the conflict between China and Australia and become an extra factor in the [AUDUSD’s][1] rise. For now, I’ll keep my moderate [November’s forecast][2] of 0.75 and 0.78 by mid-February and mid-May. My advice is to buy the pair in the falling market.

[AUDUSD][3] current rate in the Forex market:

AUDUSD = 0.74074

1-day change

0.00374 (0.51%)

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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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