Australian Dollar price forecast 10 February 2021

2021-02-10

Aussie passes a hurdle. Forecast as of 10.02.2021Dmitri Demidenko

If it weren’t for the Australian QE and historically low RBA rates, the Australian dollar would be significantly higher than current levels due to rising commodity prices. Let us discuss the Forex outlook and make up a trading plan.

Fundamental Australian Dollar forecast for six months

Fiscal stimulus is fueling consumer demand, including demand for commodities. Hopes for commodity demand to recover to pre-crisis levels are pushing up prices of its market assets and currencies. They appear as the main favorites on Forex. The only thing that can hold them back is central banks’ monetary policy, but this is a temporary measure. The Australian dollar serves as a typical example.

The RBA’s decision to add another AU$100 billion to the QE program came as a complete surprise to the market. Investors hoped that the regulator would signal QE’s curtailment amid victory over the pandemic, the opening of the economy, and an improvement in the labor market conditions. Only Philip Lowe’s speech, the Governor of the Reserve Bank of Australia, clarified the situation. If not for monetary policy, the Aussie rate would have been significantly higher. In Lowe’s opinion, it is determined by the commodity market and the activities of central banks-competitors. At the same time, the growth of [AUDUSD][1] by a third of the March bottom levels slows down inflation. According to RBA forecasts, CPI will not return to the target range of 2-3% on a sustainable basis until 2023, which allows the regulator to talk about the need to keep the cash rate at the current level of 0.1%, at least until 2024.

Dynamics of cash rate and Australian inflation

Source: Bloomberg.

Thus, the de jure expansion of the Australian QE is an attempt to reduce the debt market rates and accelerate inflation. De facto, it is nothing more than a barrier on the way of the [AUDUSD][1] bulls. It seems that Philip Lowe is a bit disingenuous. Australia’s inflation is not as hopeless as he tries to present . The deferred demand and rising prices for raw materials, including those for energy, will surely drive up the CPI in the next couple of quarters. Curtailing the RBA’s QE program is a matter of time, and what the central bank did in February was nothing more than a currency war.

In my opinion, the [AUDUSD][1] rally will continue, which will be significantly facilitated by the reset of US-China relations. At first glance, Donald Trump’s aggressive policy has paid off: in 2020, the US- China foreign trade deficit amounted to $310.8 billion, which is $36 billion less than in 2016, when Trump won the election. At the same time, during his time in power, the aggregate negative balance of trade in goods and services increased by 41%.

Dynamics of US foreign trade

Source: Bloomberg.

The main reason for the negative dynamics of the indicator is the slowdown in international trade. So it is not surprising that Joe Biden intends to reconsider relations with China. Hope for a thaw is fueling investor demand for the yuan and the closely related Australian dollar.

[AUDUSD][1] trading plan for six months

Thus, no matter how hard the Reserve Bank of Australia tries to restrain its currency exchange rate, it only allows traders to buy “Aussie” cheaper, which we have done. My trading idea to buy the [AUDUSD][1] on the price decline towards [0.763 and 0.759][2] was correct. Now it remains to go with the flow in the direction of the 0.79 and 0.82 targets, periodically increase longs on pullbacks and watch as the deposit increases.

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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