بروزرسانی: 28 خرداد 1404
Aussie bulls discouraged. Forecast as of 14.02.2024
Divergence in monetary policy does not always support the local currency. A small open economy can face serious problems due to its trading partners and politics. Let us discuss this topic and make up an\xa0AUDUSD trading plan.
Weekly Australian dollar fundamental forecast
Although the RBA tried to support the Australian dollar with suggestions of possible rate hikes, the events in the USA and China have sent the AUDUSD to a three-month low. Considering the risks of Donald Trump returning to power in the USA and accelerating US inflation, the AUDUSD could go down deeper.
Inflation in Australia is slowing but is still high, RBA officials say, suggesting a possibility of a resumption of the monetary tightening cycle. The regulator\'s forecasts imply that CPI will return to the middle of the targeted range of 2%-3% at the end of 2025 and will fall to its lower limit only in 2026. Considering the fact that the impact on the economy of 13 acts of monetary restriction will gradually begin to weaken, there are risks of acceleration inflation. The Reserve Bank must be on alert.
Dynamics of RBA interest rate and Australian inflation
Source: Bloomberg.
In theory, the RBA’s willingness to keep the interest rate at 4.35% for a long time amid the expected monetary easing by the Fed should result in a correction in AUDUSD. In fact, the pullback turned out to be extremely short-lived. Following the US inflation January report, the derivatives market shifted expectations for the Fed\'s first rate cut from May to June and reduced its expected scale to 90 basis points. It means cutting rates at three FOMC meetings with some probability of their growth at the fourth. At the beginning of the year, the derivatives market was set for 6-7 rate cuts, and the gradual decline in the expected scale of the Fed monetary easing supported the US dollar.
The Aussie is being pressed down by the events in and around China. China has faced a significant slowdown in consumer demand and inflation over the past 14 years. The People\'s Bank of China is forced to ease monetary policy, which, amid a stable Fed’s interest rate, supports a USDCNH rally. At the same time, the hedging cost against the risk of the yuan dropping has increased to its highest levels since 2017, being fueled by the high chances of Donald Trump returning to the White House.
Dynamics of hedging costs against yuan drop
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Source: Bloomberg.
Trump has announced that he should raise tariffs on Chinese imports to 60% in case his election as the President. If so, Chinese imports to the USA will shrink from 14% to zero. For comparison, the figure was 22% in 2017 before the start of trade wars.
China is the largest market for Australian goods and the largest consumer of raw materials. Therefore, its economic problems weaken the Aussie as the yuan\'s proxy currency and commodity currency.
Weekly AUDUSD trading plan
Thus, the events in the USA and China discourage the AUDUSD bulls. I suggest holding down the shorts entered on the price rise, followed by a rebound from resistances at 0.6535, and adding up to them on corrections. The downside targets are at 0.639 and 0.6325.
Price chart of AUDUSD in real time mode
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منبع: https://www.litefinance.org/blog/analysts-opinions/aussie-bulls-discouraged-forecast-as-of-14022024/