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Andreas Zanin
Analysis | October 30, 2020

AUD/USD Outlook & Forecast

Fundamental and Technical Analysis

30/10

The AUD has benefited from strong stock markets and a general optimism about a V-shaped global economic recovery. The rally from the March lows to recent highs is +30% but we have now moved down to test a key technical level which is 0.700. Speculators are heavily long and we are expecting traders to become risk-averse as we move closer to the US elections on Tuesday, November 3rd. Even without a big move to risk-off, the AUD looks vulnerable to a sell-off as the bullish fundamentals have peaked:

Central Bank and Interest Rates

The RBA minutes from the October meeting indicated that it’s likely the RBA will lower both their key policy rate and three-year government bond yield target by 0.15 point to 0.10% at their next policy meeting on November 3, and announce a new QE program to purchase 5-10 year government. The yield advantage the AUD had earlier in the year has gone and a. interest rate cut will limit the AUD’s upside.

Commodity Prices

Firm commodity prices have supported the AUD in recent months but the upside is now limited and we expect a break lower in the commodity complex to weigh on the AUD. Iron Ore (Australia’s biggest export) surged by over 50% between May and August but has now fallen back from a six-year high of 125.00 per tonne to$116.5 per tonne. Speculators are heavily long Iron Ore and we expect a correction down to the $85.00 a tonne. Other commodity exports such as copper, gold, Coal, etc are also expected to fall.

China Trade

Australia’s major trading partner is China and the market view is for the Chinese economy to continue to show steady growth this view is priced in and we see Chinese growth stalling. China relies heavily on exports and its markets have dried up with the impact of COVID19. Chinese data is manipulated in our view but regardless of our view, the good news is priced in.

US Elections

The USD is generally oversold and will a correction is likely into the US elections. The market is pricing in a landslide win for the Democrats and this would in the market’s view be good for global trade and the AUD. A Trump victory is a real possibility in our view and this would be heavily bearish for the AUD – Again the good news for the Aussie is priced in.

Technicals AUD/USD Daily and Weekly Charts

AUD/USD Daily Chart: We have seen the AUD fall back below the 20 day MA and we are now trading just above support at 0.7000 – We view the AUD as a sell on a clear break of support at 0.6970, stop protection 0.7080 target chart 0.6500.

AUD/USD Weekly Chart: We are coming into test a major weekly level of support at 0.7000. After the Spike Low in March, we had a + 30% rally on the AUD and we have now fallen back to the key support level of 0.700. If this level gives way we expect a move down to 0.6500 with a possible run on to 0.6000 if we get big risk-off in the markets

 

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