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Australian, New Zealand, Canadian dollar price forecast 1 March 2021

2021-03-01

2021-03-01

Commodity currencies came down to earth. Forecast for AUDUSD, NZDUSD and USDCAD as of 01.03.2021Dmitri Demidenko

The most serious market movements occur when euphoria is replaced by panic. The collapse of [AUDUSD][1], [NZDUSD][2], and [USDCAD][3] confirms this. What will happen to commodity currencies? Let us discuss the Forex outlook and make up a trading plan.

Quarterly commodity currencies fundamental forecast

What happened in Forex at the end of winter is another example of a sharp change in market trends. Investors have enjoyed the success they have achieved, seriously hoping that massive monetary stimulus and inflation will trigger a new supercycle in the commodity market. Speculative net longs of 20 commodities have been updating all-time highs for five consecutive weeks, and the Bloomberg Commodity Index has reached an all-time high. As soon as doubts appeared that the Fed would not do what its officials have said, the euphoria was replaced by panic.

It is difficult to resist buying commodity currencies when the big banks are talking about the start of a supercycle, oil, copper, and other raw materials are growing by leaps and bounds, and excessively high [S&P 500][4] values ​​force investors to look to other markets. In general, the idea of ​​a supercycle looks pretty realistic. Since producers of raw materials have reduced investment during the pandemic and lockdowns, the supply against the global economic recovery background is likely to grow slower than demand, which will contribute to higher prices. At the same time, inflation will accelerate, which will increase the demand for commodity market assets.

Commodity growth cycle

Source: Nordea Markets.

Due to the commodity market condition, Australian, New Zealand, and Canadian dollars were Forex favorites. Investors looked with a smile at the attempts of issuing central banks to knock down the growth in the yield of sovereign bonds through verbal interventions or increasing the scale of purchases in the framework of QE. However, it is one thing if debt market rates rise slowly, another if they grow by leaps and bounds. Such dynamics of bond yields inspire fears that the Fed and other regulators’ adaptive monetary policy may turn out to be short-lived, no matter how much they say otherwise. At the end of February, investors stopped believing the Fed and began to include the risks of a repeat of the 2013 taper tantrum in the dollar pairs prices on Forex. The more so because among the victims are currencies of countries with a negative current account balance.

Currencies’ reaction to the 2013 taper tantrum

Source: Nordea Markets.

Like almost eight years ago, one of the main victims of rumors about the Fed’s transition to monetary policy normalization was the Australian dollar. So don’t be surprised at its fall by almost 4% after two trading days. Yes, it turned out to be painful, but is it worth panicking?

Even though the RBA is ready to intervene in the debt market and put a spoke in the AUDUSD bulls’ wheels, and the commodity market fell into a correction, it is too early to talk about a trend reversal. If FOMC officials will show concern about the growth of US Treasury yields and associate it with worsening financial conditions, everything will return to normal. The commodity market will resume its growth, and commodity currencies will again become Forex favorites.

In my opinion, [AUDUSD][1], [NZDUSD][2], and [USDCAD][3] corrections provide us with a unique opportunity to buy the Australian, New Zealand, and Canadian dollars cheaper with targets at least at 0.8, 0.745, and 1.248, respectively.

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. my.liteforex.com/trading/chart?symbol=NZDUSD&returnUrl=true
  3. my.liteforex.com/trading/chart?symbol=USDCAD&returnUrl=true
  4. my.liteforex.com/trading/chart?symbol=SPX&returnUrl=true