Aussie is bird of a feather. Forecast as of 20.12.2021

The AUDUSD correction has finished as quickly as it started. Of course, bulls have some advantages, but the bears look stronger. What’s next? Let’s discuss this topic and make up a trading plan.

Monthly Australian dollar fundamental forecast 

Central banks usually act in sync. If one of them acts oppositely, it may lead to failure. A typical example is Turkey, whose central bank is lowering the rates amid the inflation surge, while all the rest are tightening their monetary policies. Turkey’s currency crisis proves which regulator is correct. Therefore, a more hawkish tone of the RBA’s officials is natural. Strong economic growth in Australia will eventually force the RBA to taper the monetary stimulus faster than expected.

According to Philip Lowe, the Reserve Bank is heavily influenced by the actions of other central banks. If other regulators complete the QE, the RBA will likely do the same. However, if the Australian central bank considers that the bond purchases are the right decision, it will continue. It looks like a clear hint at the end of the local quantitative easing programme in February. The Fed is speeding up the tapering of the US QE, the ECB is scaling back the asset purchases pace, the BoE is raising its interest rates. In this situation, the RBA’s attempt to retain its QE looks ridiculous.

It would be even more strange amid the strong growth in Australia’s employment. In November, the indicator added 366,100 new jobs, significantly exceeding the forecast of Bloomberg experts of 200,000. Unemployment fell from 5% to 4.6%, heading for the target of 4%. When the latter is reached, and inflation is consolidated within the target range of 2-3%, the RBA will be ready to raise the cash rate. The derivatives market gives a 75% probability of the first rate hike in May, although Philip Lowe has repeatedly tried to convince investors that monetary policy will hardly be tightened until 2024. It will be very difficult for him to stick to the old mantra amid strong employment, robust GDP growth, and the end of the stimulus by the world’s largest central banks.

Dynamics of average wages growth and unemployment in Australia

Source: Bloomberg

According to the Treasurer, Josh Frydenberg, Australia’s economy is poised for strong growth because of income tax cuts and a fast labor market recovery. As a result, household consumption is growing at the fastest pace in two decades. The government expects real GDP to increase by 3.75% in the 2021/2022 fiscal year.

Strong domestic data and a more hawkish tone of the RBA’s officials should have encouraged the AUDUSD bulls to go ahead. However, they could just draw the price above 0.72 only for a moment, after which it crashed. Investors preferred not to go against the Fed and went on to buy the US dollar. While the derivatives market expects the federal funds rate to rise to 1.5% in 2024, and the FOMC predicts its growth above 2%, the greenback will stay in demand.

Monthly AUDUSD trading plan

Positive US economic data will press down the AUDUSD towards 0.706, 0.699, and 0.692. Therefore, it is relevant to hold down and add on the corrections to the shorts entered at level 0.7185.




Price chart of AUDUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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