Analysis | January 19, 2021

AUD/USD: Outlook and research

As we have noted in recent posts the market is heavily short the USD against other major currencies and hold their biggest short position since 2011. The USD has rallied back a bit on most majors but we see the potential for far more upside. If the USD does mount a major trend reversal one currency that will get hit hard is the AUD which since its lows in April has rallied 35% from its low – the rally is now stalling but the majority of trading research we read is looking for More Aussie strength and below is a typical view…

Why The Majority In the Market See More AUD Strength
Analysts at Citibank forecast AUD/USD at 0.78 in a three month period, and at 0.81 in a six to twelve-month horizon they note: “The dollar drifted lower after Federal Reserve Chair Jerome Powell struck a dovish tone, saying the economy remained far from the Fed’s goals and he saw no reason to alter its highly accommodative stance. The headline was supportive of the AUD.” ( Citibank) the AUD didn’t rally on the news and this in our view is because the Fed can be accommodative with stimulus but bond yields are rising and we see rising bond yields as bullish the USD– they continue:

“Through 2021, AUD should continue to trade high beta to risk on/global growth developments. The expected wide-scale rollout of a vaccine, our expectations for a reflationary 2021, and associated weaker dollar, therefore implies AUD appreciation. Aussie should be additionally supported by the continued strong economic recovery in China, given the two countries’ trade links.” (Citibank)

The vaccine impact is discounted in our view, the economic data doesn’t support the view of a quick global recovery and we think the Chinese economic growth is overstated…

“China reported Monday that its economy grew 2.3% last year as the world struggled to contain the coronavirus pandemic. Gross domestic product rose by 6.5% in the fourth quarter from a year ago, official data from the National Bureau of Statistics showed. Those numbers beat analysts’ expectations.” (CNBC)

The Chinese tell the world what they want it to hear how did they manage that growth when all their major export markets have contracted in recent months due to COVID affecting the economies of their major trading partners?

Here is the official view from within China on the economy “it has recovered steadily” and “living standards were ensured forcefully,” the National Bureau of Statistics noted this week. It said the ruling party’s development goals were “accomplished better than expectations” but gave no details of how their goals were achieved. China has overstated growth rates for years as many commentators have noted and their doing now in our view. Even if we are wrong the “strong recovery” is discounted.

AUD/USD has had a great run to the upside but we would now expect some counter-trend action and the levels of support and resistance and outlined on the chart below:

Technical and Fundamental Analysis

AUD/USD DAILY CHART: The AUD has made several attempts to take out the 0.7800 level, but we have fallen back to trade above the 0.7700 level. The Aussie has traded above the 20-day moving average (green line) since Nov and it lines up with support – if we break below it and support, we could sell off to major support levels indicated.


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