In 2021, the AUD/USD double top pattern has formed. In February and May, the AUD/USD failed to reach the top. After May, the price plummeted and returned to the level of July-August 2020. Through multi-faceted analysis, we believe that the current decline in the Australian dollar may last for a long time.
AUD/USD daily chart
Marginal demand for commodities is reduced, suppressing the Australian dollar
Comparison found that the trend of the Australian dollar last year was highly positively correlated with the trend of commodities. Before February last year, as the epidemic gradually eased, the global industrial chain partially recovered, demand for upstream resource products surged, inflation expectations continued to rise, and the volume and price of most commodities rose. As an important resource exporting country, the surge in global commodity demand has supported the Australian economy, which was originally depressed.
The gradual rise in inflation has also triggered market concerns about tightening monetary policy. Commodities with strong financial attributes took the lead in falling, and the Australian dollar also fell in response. However, with the comfort of the Federal Reserve, commodities returned to their upward trend. It wasn't until May, after commodities experienced the last round of collective surges, that the Australian dollar's double top officially formed.
The export of iron ore, gold, aluminum and copper plays an important role in the Australian economy. About 43% of the goods exported to China in 2020 are highly correlated with the Chinese economy and the RMB. Under the background of carbon neutrality and carbon peak, the demand for Chinese bulk commodities, especially metal commodities, has been marginally reduced, and the Australian economy and the Australian dollar have been significantly suppressed.
U.S. bond yields strengthened, and the Australian dollar weakened.
However, since December last year, the Australian dollar/US dollar has opened a month-long rebound window. At the same time, long-term U.S. bond yields have been relatively weak, and the U.S. dollar index has fluctuated sideways. This actually indicates that the Fed may not tighten liquidity as fast as the market expected in November.
The rebound is always short-lived. When the minutes of the Federal Reserve's December meeting were released, the Federal Reserve's hawkish stance revived risk aversion. Long-term U.S. bonds rebounded quickly, and the Australian dollar/US dollar also fell again. The Federal Reserve's dot plot shows that all 18 members of the Federal Open Market Committee unanimously expect to raise interest rates starting in 2022, and 12 of them believe that interest rates will be raised at least three times in 2022.
We believe that there is basically no big difference in raising interest rates starting in 2022, but the possibility of raising interest rates at least three times in 2022 is almost zero. When we refer to the frequency of interest rate hikes by the Federal Reserve in the past, it is not difficult to find that in the process of monetary policy turning from loose to tight, there is often a process of tentative interest rate hikes. After the market gradually adapts to the monetary policy, it will speed up the normalization of monetary policy. If the Federal Reserve raises interest rates more than once in 2022, it may trigger periodic market fluctuations.
The long-term decline of the Australian dollar is difficult to change.
Foreign exchange research institution Yunhe Variables believes that "after the Australian dollar against the US dollar surged to a recent high of 0.7272 during the European session last Thursday, it retreated slightly in late trading. The generally optimistic tone of the stock market may inhibit traders from making aggressive moves against the US dollar." Go long and provide support for the riskier Australian dollar. Technically, last week's break above the 0.7200 mark is favorable for continued bullishness, but any subsequent gains are more likely to face strong resistance near the 100-day SMA."
Summary of the above, tightening. During the cycle, due to the sluggish midstream manufacturing, it is difficult for Australia's exports to maintain high growth. Coupled with the continued impact of the epidemic on the domestic economy, the Australian dollar will begin a years-long decline. However, such as the temporary subsidence of risk aversion and the less hawkish rhetoric of the Federal Reserve. It may lead to a phased rebound of the Australian dollar. When the Australian dollar is weak in the medium and long term, it will follow the trend and go against the trend. Pay attention to the trading opportunities of short selling in the CME Group Australia/USD futures contract (6A) on rallies.
