2023.02.28 2023.02.28
Aussie is to wait. Forecast as of 28.02.2023Dmitri Demidenkohttps://www.litefinance.org/blog/authors/dmitri-demidenko/
To win in Forex, it is important not only to have benefits but also to choose the best moment to use them. As long as all investors’ attention is focused on the US dollar, AUDUSD remains passive. The Aussie is to step forward later. When exactly? Let’s talk about this topic and draw up a trading plan.
Quarterly Australian dollar fundamental analysis
Back in late January, the Australian dollar was praised, being raised to the rank of the best performer among the G10 currencies. A month later, the Aussie tops the list of major underdogs. China’s recovery may not be as fast as expected, and unprecedented political pressure on the Reserve Bank of Australia makes investors doubt an aggressive cash rate hike. Does this mean that the Aussie has used all the benefits? I do not think, rather, the advantages are held until better times.
At the beginning of the year, the AUDUSD rally was due not only to an improvement in global risk appetite but also to expectations of an acceleration in the RBA monetary restriction. At the end of February, a lot has changed. A series of positive reports on the US economy has reduced the likelihood of a recession and allowed the derivatives market to raise the expected ceiling on the federal funds rate from 4.9% to 5.4%, which implies three acts of monetary restriction by 25 basis points each.
Conversely, a weak jobs report in Australia gives Bloomberg experts reason to raise the forecasts for a recession in the Australian economy from 1/4 to 1/3. Nonetheless, the ceiling for the RBA interest rate, according to the derivatives market, is still at around 4.3 %, which means four rate hikes, one more than the Fed.
Dynamics of inflation and expected recession in USA and Australia
Source: Bloomberg.
Thus, there are still AUDUSD bullish factors, such as a more aggressive monetary tightening and Chinese economic recovery associated with higher commodity prices. However, these factors are likely to work out in the second quarter.
Right now, the Aussie is going down due to unfavorable stock market conditions. The fall in stock indices strengthens the greenback as a safe-haven currency, and the growth of treasury yields increases the attractiveness of US assets, contributing to the capital flow to the US. At the same time, the worsening economic data for Australia leads to a decrease in the index of economic surprises, and the divergence in GDP growth encourages the AUDUSD bears.
Dynamics of economic surprise index and consumer confidence in Australia
Source: Bloomberg
However, the Australian dollar still has some strong points. Australia’s current account surplus of AU$14.1 bn was significantly higher than Bloomberg’s forecasts. At the same time, a 1.9% M-o-M increase in retail sales in January speaks of robust consumer demand and gives the RBA a free hand in monetary tightening.
Quarterly AUDUSD trading plan
Thus, the Australian dollar still has some benefits, which will work out later. The AUDUSD trend could turn up in the long term. If the US data on employment and inflation are weak, the pair could go up to 0.7 and 0.72 in 3 and 6 months, which suggests buying the Aussie on the price decline.
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 LiteFinance. 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.
Rate this article:
( {{count}} {{title}} )