It’s hard to remember the times when the AUDUSD had so many growth drivers. Support from Chinese exceptionalism, the Fed’s move from the standard 25-basis-point rate hiking, and the strength of the Australian economy are the reasons for the pair’s rally. Let’s discuss the Forex outlook and make up a trading plan.
Monthly Australian dollar fundamental analysis
History repeats itself. Investors have fresh memories of the second half of 2020 when Chinese exceptionalism and a roaring recovery in US stocks from a deep but short-lived recession in the global economy allowed the Australian dollar to soar higher. At the same time, few people remember the events of 2007-2008, when the Fed suspended its monetary tightening cycle, Beijing launched monetary easing, and the European economy grew faster than expected. Back then, commodity currencies were the favorites. And so, Aussie is facing its finest hour.
The Aussie’s leadership in the G10 currency race since the beginning of the year is by no means accidental. Optimism about the opening of China creates a tailwind for the AUDUSD in several directions. Firstly, China is the largest market for Australian goods, and Australia is a kind of tourist Mecca for travelers from China. In 2019, they spent $255 billion, and a significant part of the money settled in Canberra, Melbourne, Adelaide, and other cities.
Dynamics of China’s economy
Source: Bloomberg.
Secondly, China is the world’s largest consumer of raw materials. In 2022, Australia’s trade balance and current account position improved due to rising commodity market prices. In December alone, the foreign trade surplus amounted to AU$ 13.2 billion, exceeding the forecasts of Bloomberg experts. In 2023, the situation may improve even more, which will support the AUDUSD.
Finally, China can support the entire world economy, which will increase global risk appetite, strengthening speculative assets such as the Australian dollar.
Thus, the Aussie is getting triple support from the recovery of the Chinese economy: as a proxy currency, a commodity currency, and a risky currency.
The Australian dollar is strengthening not only because of foreign drivers. Strong employment and remaining high inflation could force the RBA to tighten its monetary policy more aggressively. Although the derivatives market is currently betting on a 20-basis-point cash rate hike in February and a 3.6% rate ceiling, just half a point above the current level, the RBA suggest in the minutes of its last meeting that it could speed up.
Dynamics of expected ceiling for Fed and RBA interest rates
Source: Bloomberg.
In this regard, the growth in employment and unemployment hitting a record low of 3.4%, expected by Bloomberg experts, is a reason to buy AUDUSD.
Monthly AUDUSD trading plan
Therefore, both foreign and domestic environments suggest an optimistic outlook for the Aussie. Triple support from a potential buoyant economic recovery in China following the lifting of restrictions, as well as a strong Australian economy and the RBA’s hawkish stance, suggests that the AUDUSD rally is far from being exhausted. It is still relevant to buy the pair on corrections, as outlined in the previous analytics. Furthermore, I would like to increase the targets from 0.704 and 0.711 to 0.715 and 0.735.
Price chart of AUDUSD in real time mode
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