La AUDUSD was 7% down from the October highs and should continue to fall deeper. However, buyers have reasons to continue. Let’s discuss this topic and make a business plan.
Monthly Australian dollar fundamental forecast
Increased global risk appetite, RBA optimism and positive reports on the Chinese economy have supported the Australian dollar. The Aussie was under pressure because of the omicron. However, after fears of a new strain of COVID-19 gave way to the hope that the pandemic would end, the AUDUSD bulls went forward. If the South African variant of the coronavirus does not lead to an increase in the number of hospitalizations, it may not be as dangerous. The omicron can well displace the delta and become a kind of seasonal flu. If so, isn’t it time to buy risky assets?
The Australian dollar, due to the higher yields on local 10-year bonds, compared to most G10 currencies other than the New Zealand dollar, is still considered a risky asset. Therefore, the S&P 500 a rally, backed by news from South Africa, sent the AUDUSD up from its 14-month lows. The Aussie is also supported by the growth of Chinese imports and exports to record highs in November. China is Australia’s main trading partner, so China’s economic strength is a reason to buy the Australian dollar.
Dynamics of Chinese foreign trade
The omicron information was positively interpreted not only by financial markets but also by the RBA. Following the results of the December RBA meeting, Philip Lowe noted the high level of vaccination in the country, a significant increase in domestic consumption. He also expressed confidence that the Australian economy will return to robust growth despite the new variant of COVID-19.
Amid the central bank’s optimism, the derivatives market is retaining the interest rate opportunity in May and is betting on a short-term decline in the RBA’s quantitative easing program. According to the Commonwealth Bank of Australia, in February, the regulator will most likely announce the reduction of the purchase program from AU $ 4 billion to AU $ 2 billion per week and signal the QE completion in the near future. The National Bank of Australia argues that although Philip Lowe and his colleagues say they will not raise the money rate until 2024, rising inflation and wages will force them to take steps to tighten monetary policy much sooner. Probably in the fourth quarter of 2022.
Australia’s inflation dynamics and RBA interest rate
Therefore, the AUDUSD bulls may well develop an upward correction, and the issue is how high the price will rise. In the medium term, the Australian dollar looks weaker than the US dollar. First, China’s economy is not as strong as it seems, based on foreign trade data. Otherwise, the People’s Bank of China would not reduce the reserve demand ratio from 8.9% to 8.4%. Second, the Fed is willing to tighten monetary policy aggressively, which should be evident from the FOMC’s updated forecasts.
Month AUDUSD business plan
Summarizing all of the above, one must be careful with AUDUSD longs in the correction. If the price bounces down from resistance at 0.7135, 0.7185 and 0.7245-0.726, one could consider selling the pair.
AUDUSD price chart in real-time mode
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