By 2028, the American economy will be bypassed by China. This fact and the PRC’s insatiable demand for iron ore will favor the AUUSD bulls for many years to come. Let us discuss the Forex outlook and make up a trading plan.
Fundamental Australian Dollar forecast for six months
Vaccine, incentives, and China are the recipe for a nearly 42% rally in AUDUSD from March lows to January highs. Looking at the astonishing rise of the Australian dollar, one may begin to doubt its continuation. But what if none of the investors will no longer buy, global risk appetite will stop growing so fast? Will Joe Biden’s inauguration be a signal for profit-taking on US stock indices? Will China’s GDP accelerate in 2021? Finally, can vaccine continue to push the S&P 500 up?
Investors cannot expect the same scale of monetary and fiscal stimulus as in 2020. At best, the Fed will continue to buy assets for $120 billion a month until the end of the year, and the factor of Joe Biden’s $1.9 trillion aid package is already included in the prices of US stock indices. According to Nordea Markets, the number of positive news about vaccines has approached its extreme value and will no longer provide the previous support for the S&P 500. At least for a while. This is fraught with increased turbulence in the stock market and the strengthening of the greenback.
S&P 500 and virus/vaccines news dynamics
Source: Nordea Markets.
Will China’s GDP Accelerate in 2021? The World Bank thinks so. According to its forecasts, China’s economy will expand by 8% this year and exceed the 2019 level by 10%. Beijing’s voracious demand for steel is fueling the rise in iron ore futures, which is a crucial component of Australian exports even as the US dollar strengthens. At the same time, in 2020, China fulfilled only 52% of its obligations to purchase US goods. If Joe Biden touches on this topic during the inauguration, the yuan’s fall will create problems for the AUDUSD bulls.
Let’s not forget about the potential expansion of the US Treasury bond issue due to the need to finance $1.9 trillion in fiscal stimulus. This action could provoke further growth in treasury yields and a correction of dollar pairs on Forex.
Thus, in the short term, the Australian dollar has a lot of risks. Nevertheless, in the medium and long term investment, it will probably be able to recoup. History shows that crises worked in China’s favor. In 2001, when Beijing joined the WTO, its economy was only 13% of America’s size. In 2009 this figure increased to 35%, in 2020 to 71%. By 2028, the American economy will be bypassed by China. Growth in its GDP and Aussie neutral positioning serves as bullish factors for AUDUSD.
Speculative positioning in major currencies
Source: Nordea Markets.
AUDUSD trading plan for six months
In my opinion, the acceleration of the vaccination process and the more vigorous growth of the global economy than currently expected will help restore the uptrend in emerging markets’ currencies and the Australian dollar. However, the AUDUSD correction may continue shortly. So much, the better. The fall of the AUDUSD pair to the supports at 0.763 and 0.759 will make it possible to buy the Australian dollar at a lower price. It is still relevant to open AUDUSD long positions on the price rise with the targets at 0.79 and 0.82.
Price chart of AUDUSD in real time mode
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