AUDUSD – And The USDUSD Will Fall Soon
Australia's (AUDUSD) strength has been overshadowed by the European (EURUSD) weakness. Australian and US dollar exchange rates are difficult to identify from a far distance, unless you know what you are looking for.
The Australian dollar is an exception in the Western Hemisphere. But I believe that both the AUDUSD and the USDCAD will eventually weaken.
The US Federal Reserve is trying to get the inflation rate on a slow and steady increase. But this is possible only if all other factors (the output gap, recession, balance of payments deficits, etc.) stay at a safe level.
However, as far as the Australian economy is concerned, I do not see any major changes. The Australian dollar and the AUDUSD could turn out to be a good investment currency pair. As I see it, the AUDUSD and the USDCAD have formed an overlapping triangle with USDJPY (Japan's biggest export), AUDGBP (Australia's second biggest export), and NZDUSD (New Zealand's third-biggest export).
The Australian economy remains fragile. There is no doubt about that. However, I believe that the weak dollar will encourage overseas manufacturing to begin a revival in Australia. I am predicting that the currency pairs will follow the same trend that they did before 2020.
Two major central banks (the Federal Reserve and the Bank of Japan) intervened extensively to influence the AUDUSD and the USDCAD. I think that this was good for the currencies and was expected by the market participants. I think that this type of activity is necessary to prevent another financial crisis. If we are successful, then the AUDUSD and the USDCAD will stabilize and remain on a fairly stable basis.
TheAUDUSD is now moving steadily upwards, thanks to the efforts of the central banks. But the rally is not very profitable and will probably reverse when the Federal Reserve cuts interest rates.
This is the main reason why I think that the AUDUSD will weaken and will begin a short-term correction. If we are unable to stabilize the exchange rate, the AUDUSD may fall further.
To me, it seems that the central banks succeeded in convincing the Australian and US dollar to rise in value. The increase in the USDJPY helped the AUDUSD and the USDCAD. The big problem now is that the huge inflows into the market (Chinese and South Korean capital flows) will be squeezed out of the market, if the Australian and US dollar continues to rise in value.
But as far as I can see, the traders will probably benefit more from these movements than the central banks. As I said before, the central banks may be able to provide support to the Australian and US dollar. But the market participants will be able to profit more from the currency movements in the Australian and US dollar do not continue to rise.
Right now, the big threats to the AUDUSD and the USDCAD are not the big or small companies, but rather the huge inflows of capital from China and South Korea. I do not think that the Australian and US dollar will go back down to their fundamental levels soon.
In this regard, the Federal Reserve has been very successful in making the US Dollar strong and in keeping economic growth steady. On the other hand, I do not believe that the AUDUSD will fall as far as it did last year.