China’s victory over COVID-19 gives a historical resemblance to the second half of 2020. At that time, the AUDUSD bull market was king in the Forex market due to China and its strong commodities and stock markets. Will they manage to replicate the success? Let’s talk and make a trading plan.
Weekly Baseline Forecast for Australian Dollar
The central bank starts slow and drives fast. When the Bank of Canada raised interest rates overnight by 50 basis points all at once in May. by joining the Fed and other regulators Investors wonder why the Reserve Bank of Australia should not speed up monetary limits in June. those rumors Getting out of China’s lockdown And Australia’s strong macro record has propelled AUDUSD to its highest in 1.5 months.
22 of the 35 experts from Reuters had forecast the RBA’s cash rate rise 25 basis points at its June 7 meeting, while 11 experts expected a 40 bp rate hike. How do we move when 5.1% inflation exceeds our forecast of 2.3% and the labor market is the strongest in a decade? A 25 bp hike is not enough to re-control the CPI, the RBA uses to refer to growth. of low wages But this argument is no longer relevant as local employment rose 5.5% in January-March.
The Australian GDP release in Q1 gave the RBA monetary limit an upward trend and boosted AUDUSD. The economy grew 0.8% qq and 3.3% yoy. The growth rate exceeded Bloomberg’s consensus forecast and levels before the epidemic
Australian GDP dynamics
source: Bloomberg
In addition to strong inflation, employment and GDP data The exits from China’s lockdown and statistics on commodity markets also support the AUDUSD’s new uptrend. Just think of the AUD’s rise in the second half of 2020 when China locks in as COVID-19 rages outside. Will the story repeat two years later?
I think the AUDUSD bull is in a very bad state right now. China has successfully tackled the coronavirus, but the rest of the world has almost forgotten about the virus. moreover US stock indexes grew by leaps and bounds in the second half of 2020, but investors are now not buying stocks as the S&P 500 risks fall into bear territory.
In such situations, which method will the RBA choose is an extremely important question. Will it tighten its aggressive monetary policy as the market expects or opt for the opinions of experts? Derivatives markets expect the cash rate to rise to 2.7 percent by the end of 2022, while just 10 of the 35 economists polled by Reuters assumed a 2 percent rise and more, forty percent of respondents forecast. that the rate will not increase by more than 1.75%
RBA sentiment and a 40 bp cash rate hike at its June 7 meeting will boost Australian bond yields and AUD growth.
The dynamics of Australian bond yields
source: Bloomberg
Weekly Trading Plan for AUDUSD
First of all, AUDUSD will have to deal with US statistics. in the labor market in May If the stats are strong The pullback of the pair will bring the long opening at the 0.735 and 0.745 levels.
AUDUSD price chart in real time mode
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