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Australian dollar price forecast December 16 2020| AUDUSD fundamental analysis

2020-12-16

2020-12-16

Aussie enters the warpath. Forecast as of 16.12.2020Dmitri Demidenko

The US-Chian trade war had weakened the yuan. So, the Australian dollar stability looks surprising. What are the reasons? Let us discuss the Australian dollar outlook and make up an [AUDUSD][1] trading plan.

Fundamental Australian dollar forecast for a year

China’s trade war with Australia doesn’t prevent the [AUDUSD][1] bulls from reaching the targets set in the [mid-November][2]. The Australian dollar has hit a level of $0.75 last time seen 2.5 years ago. The traders ignore the fact that Australia will launch a formal appeal to the World Trade Organization (WTO), seeking to review China’s unfair tariffs. Beijing imposed five years of anti-dumping and anti-subsidy duties totaling more than 80% on Australia’s barley. This will cost Australia’s producers AU$2.5 over the next five years.

The conflict started in 2018 when  Australia banned Huawei from its nascent 5G broadband network for national security reasons. Next, Canberra called this year for an independent investigation into the origins of COVID-19. Beijing retaliated, accusing Australia of being a US puppet and interfering in China’s domestic affairs. Of course, China is getting revenge. Import duties on barley, beef, and wine alternated with bans on copper, sugar, timber, and lobsters. When it came to coal, Canberra asked for an explanation. According to Chinese media reports, Beijing has allowed its companies to receive coal from all over the world, except Australia.

I remember how the US-China trade war pressed down the Chinese yuan in 2018-2019, so, surprisingly, the Aussie remains stable. China is the largest consumer of Australia’s exports, and the volume of trade between Australia and China totals AU$55 billion. Investors seem to be confident that the conflict won’t be further escalated. If so, the strong domestic demand (consumer confidence has been rising for the fourth consecutive month, reaching a 10-year high) and the increase in global risk appetite will support the [AUDUSD][1] rally.

Dynamics of consumer confidence in Australia

Source : Bloomberg

The main drivers of the [AUDUSD][1] uptrend are the dollar weakness, the growth of commodity prices, first of all for iron ore, and an increase in Australia’s PMI. The successful fight against the pandemic, the exit from the lockdown, and massive stimulus from the government and the Reserve Bank have yielded positive results - GDP quickly recovered in the third quarter and will continue to return to the trend in the fourth and first quarters.

The [AUDUSD][1] bulls are not set back by the Westpac forecasts, suggesting that the RBA, struggling with the AUD strengthening, will expand QE’s asset purchase size by AU$100 billion. The company believes the Reserve Banks of Australia is dissatisfied with the Aussie growth to $0.8.

[AUDUSD][1] trading plan for a year

I believe the [AUDUSD][1] uptrend is strong. The Aussie’s rally could end only in case of the vaccination failure and a new global recession, which is unlikely. In 2021, the pair could reach the [target at 0.78 indicated earlier][2]. Moreover, the price could go up to 0.8-0.82. The further escalation of the trade conflict between Australia and China will allow us to sell the [AUDNZD][3] at the breakout of the support levels of 1.058 and 1.0565.

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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  1. my.liteforex.com/trading/chart?symbol=AUDUSD&returnUrl=true
  2. www.liteforex.com/blog/analysts-opinions/china-targets-the-aussie-forecast-as-of-16112020/
  3. my.liteforex.com/trading/chart?symbol=AUDNZD&returnUrl=true