Australian dollar price forecast 24 February 2021

2021-02-24

Aussie gains ground. Forecast as of 24.02.2021Dmitri Demidenko

In 2020 the [AUDUSD][1] bulls were supported by China, effective control over the pandemic, and faith in improving relations between Washington and Beijing after Joe Biden’s victory. In 2021 the Aussie has new allies. Which ones? Let us discuss the Forex outlook and make up a trading plan.

Monthly Australian dollar fundamental forecast

80 US cents - awesome, 70 US cents - ok, 60 US cents - country has some problems, or something important is happening abroad. This is what Australians think about the AUDUSD rate. Judging by the fact that the [AUDUSD][1] prices are approaching level 0.8, the Australian population is in seventh heaven. However, no matter how good it was for the whole nation, there will still be dissatisfied people. The Reserve Bank may not like the 40% rally of the Aussie since the March low, but even the RBA’s officials admit the rally is logical.

If in 2020 the Aussie grew due to the strength of the Chinese economy, effective control over the pandemic, and hopes for improving relations between Washington and Beijing. In 2021, its main allies are rumors about the start of a super-cycle of commodities. The massive monetary and fiscal stimulus has created a reflation environment in which commodity market assets have a favorable position. Is it any surprise that the Bloomberg Commodity Spot Index has soared to its highest level since March 2013?

Dynamics of the commodity market index

Source: Bloomberg.

The indicator tracks the dynamics of 23 assets that Australian companies sell. It includes oil, copper, and iron ore. Demand for raw materials is expected to grow faster than supply, widening deficits as producers cut investments due to lockdowns.

The RBA is well aware of this and states that if it were not for its ultra-easy monetary policy, the Aussie rate would have been significantly higher, reflecting the dynamics of commodity market assets. Looking at the [AUDUSD][1] rapid rally, it becomes clear that the central bank needs to accelerate inflation, which will make its position extremely difficult. However, there have been worse times. For example, in 2011-2012, the Australian dollar was more expensive than USD.

The strengthening of the Aussie, which slows down inflation and limits sovereign export opportunities, is not the RBA’s only problem. Most likely, Philip Lowe and his colleagues are not happy with the rapid rally in Australian bond yields, which may hinder the economic recovery. However, similar difficulties are typical for other central banks, and the change in the rate spread on the Australian and US debt markets will create a headwind or a tailwind for the Aussie buyers.

Dynamics of [AUDUSD][1] and differential of Australian and US bond

yields

Source: Bloomberg.

Judging by the fact that the Brent $100/b forecasts will not surprise anyone, the commodity market’s super-cycle will continue to impact the [AUDUSD][1] bulls positively. Perhaps the only thing that could trigger a deep correction is investor disappointment over the thaw in US-China relations. Beijing called on Washington to lift import duties and not interfere in China’s internal affairs. Would Joe Biden consider this rude?

Monthly [AUDUSD][1] trading plan

In general, the rates for buying [AUDUSD][1], which I mentioned [in March][2], work out regularly. The 0.79 target, set [in early January][3], has been reached, and the level of 0.82 is next in line. My advice is to buy the pair.

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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