Will China save the Aussie? Forecast as of 12.09.2023 | LiteFinance

The AUDUSD has been a disappointment for most of 2023 as it found no support in Asia. Little time is left until the end of the year. If Beijing wants to expand its economy by 5%, it’s time to act. Let’s discuss it and make a trading plan.

Weekly fundamental forecast for Australian dollar

The Australian dollar is the worst performer among the G10 currencies in the third quarter amid the cooling of the national economy, downbeat Chinese stats, and investor’s belief in the end of the Reserve Bank’s policy tightening. The RBA has kept the cash rate unchanged at 4.1% for a third consecutive time at September’s meeting, raising the possibility of a further rate increase. But can anyone be sure about anything? The AUDUSD could strengthen on an unexpected renewal of monetary restrictions.

In contrast to the Fed, which raised borrowing costs by 525 points, the RBA has increased them just by 400 points since the start of the cycle. That’s because Australia has more mortgage holders on variable rates than the US. Policy tightening started to be felt in Australia, indeed. A jobs report for July is disappointing, the GDP slowed from 2.4% to 2.1% in Q2, and foreign trade is worsening.

Australian trade balance


Source: Bloomberg.

At the same time, the economy continues growing, raising the chance of a soft landing. Inflation rates are slowing, which is the credit of outgoing governor Philip Lowe. These trends convince investors that the RBA’s monetary restrictions are over, which keeps the US and Australian bond yield differential high and leads to the AUDUSD‘s decline.

Dynamics of Australian inflation and RBA rate

Source: Bloomberg.

Still, Monex Europe thinks the market underestimates a cash rate growth potential. Thus, the company’s forecast for the Aussie is bullish, even more so because Beijing will have to use direct stimuli for 5% GDP growth. Interestingly, most Bloomberg experts also remain on the bulls’ side despite asset managers’ record Aussie shorts. The consensus forecast for the AUDUSD is 0.66 for the end of 2023 and 0.68 for the end of Q1 2024. 

We see the Aussie is dependent on China because it reacts to the PBoC’s verbal interventions to support a falling yuan. The People’s Bank of China said Forex market participants must maintain the yuan’s stability and avoid speculative trading. The regulator is determined to fight it. Such statements moved the USDCNH away from record peaks and helped the AUDUSD soar. 

Weekly trading plan for AUDUSD

I’ll say it again: the main reason for the Australian dollar’s fall in 2023 is investors’ failed expectations for the Chinese economic recovery. At the beginning of the year, they were confident about China’s economic growth following lockdowns. Alas! But we still have the rest of the year, and a bet on China’s direct stimuli can be repaid. So, we can go long if US inflation data are weak or the AUDUSD breaks out resistance at 0.6475 and 0.6525.

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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