Despite the strong AUD/USD forecasts for 2021, it is important to know that the Australian dollar is a highly sensitive currency to changes in risk sentiment. Its value depreciates in bad times, whereas it appreciates in good times. This is why some analysts believe that the Australian dollar is going to be a very volatile currency for the next few years. The reasons for this can be found in the commodity story, but it is also a broader story that covers other economic variables.
The Australian dollar has had an underperforming year against the US dollar. The AUD/USD rate has declined 11% from its January value. This is due to a number of factors, including the global economy, interest rate differentials, and commodity prices. The expected interruption of the uptrend in the US dollar should help the Aussie recover.
The Reserve Bank of Australia is a key influencer on the AUD, and is attempting to contain inflation. The RBA has been more cautious with rate hikes, and recently downshifted its rate-hiking regime to 25 basis points. Philip Lowe expressed concerns about the impact that high rates have on households. The Australian Bureau of Statistics reported an inflation rate of 7.3% in September. This was the highest reading since 1990.
Earlier this month, the Federal Reserve made a statement that it would be maintaining its high interest rate levels for a “longer period of time.” The US dollar has become stronger than most other currencies, and that is a factor that is weighing on the AUD. A continued front-loading of Fed interest rate hikes could lead to recession in the US sooner. This would cause investors to pile back into the Aussie. It is also possible that the Fed will cut interest rates during the first quarter of next year.
The AUD/USD has had a strong bullish recovery in the last few weeks. It is currently trading above its 25-day moving average, and is a bit above the psychological 0.6700 handle. It has also managed to climb above important resistance level at 0.6520. However, a break below this support level could expose subsequent support zones. This is particularly important at the 0.67 level.
The AUD is highly volatile, and has been underperforming this year. This is because of a number of factors, including the Chinese economy. The Chinese government has been making noises about scrapping virus penalties, and this could be a sign that the country is looking to loosen its Covid-19 policy. Nevertheless, the recent rise in COVID cases has been a concern. Until more clarity is provided, markets may be reluctant to welcome China’s reopening.
The US labor data released this week will be key in determining how the Fed plans to move forward with their monetary policies. This data is expected to be supportive of last week’s NFP numbers. This is especially true if the ISM services data is strong. The ISM statistic is a good indicator of purchasing trends.