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Will the Aussie Dollar Bounce Back Amidst Recession?

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Since the march sell-offs in March, some currencies had trouble recovering and some has risen drastically up until September. One of the countries that has seen its local currency rise is Australia with the Aussie dollar rising as much as 30% since the March sell-offs. 

Per a recent CNBC report, “The Australian dollar has spiked some 28% since a year-to-date low in March. As the country fell into recession in the second quarter, however, analysts were mixed on where the currency is headed”  

“In March, the Aussie dollar fell to a year-to-date closing low of $0.5738 against the US dollar as the coronavirus crisis intensified, and lockdown measures were triggered nationwide,” the report added further. “Defying the country’s weak economic outlook, the currency continued strengthening in the past few months. It briefly broke through the 0.74 mark this week, and reached a two-year peak, according to Reuter estimates. It has since fallen back to the 0.73 level.” 

The article noted that the Aussie dollar is the indicator of strength or weakness in the global market’s risk appetite. If more strength could be had in the Aussie dollar, it could be the proverbial tide that lifts all boats.  

“If you consider some of the fundamentals in Australia, you can justify valuation of the Australian dollar at current levels,” Nelson said. He also said the country is “very well position right now” as it provides much raw material for China’s industrial sector which has bounced back and is “one of the biggest engines of the current global economic recovery.”  

Meanwhile, amidst the COVID-19 pandemic, Australia also turned to its idled factories to pull it out of the Covid-19 slump. 

Australia has ended its seven decades of local automotive manufacturing. Three years later, the policy makers are once again looking to manufacture automotive to aid in the growth of the economy that the Covid-19 damaged in its footsteps. 

The government puts its manufacturing at the center of its long-term recovery plan and has kindled ventures to start up industrial businesses. Although, it is unlikely for Australians to buy locally made cars, refrigerators and toasters as it did in the 20th century, the government pushes the locals to support these local ventures to further improve their economic outlook. 

Australia has been too reliant on Asia for its supply of essential goods. With the recent conflict with China, Australia’s biggest trading partner, the Australians further realized that they should start their own manufacturing of supplies and goods. 

“If you look at it over time, we have been running down our manufacturing and we’re at this point of inflexion – we’re saying maybe we shouldn’t be doing that,” said Drew Woodhouse, A Sydney-based consultant at Bain & Company who looks at supply chain issues. 

TECHNICAL OUTLOOK 

AUD/USD is steady early Monday but China import/export data may see volatility spike. Aussie dollar traders are keeping an eye on China Balance of Trade data for clues about the demand for goods from the world’s largest economy. The data will likely have an impact on the Australian dollar and may see volatility at the second-half of the trading day. 

As the U.S. markets are shut for the Labor Day holiday, Asia Pacific currencies may experience less movement all throughout the day and leaves the Aussie vulnerable to data surprises such as the upcoming data from China. 

In the daily chart of AUD/USD, we can see that there is less volatility and we won’t expect to see any much action for the first day of trading this week. The Aussie’s all-time high still sits at 0.74. Although we had a strong pullback from the Friday’s session closing at 0.72, we are still yet far from making a conclusion for a possible breakout at 0.74 this week.  

For Aussie dollar traders eyeing out the China import/export data, this may give either a positive or negative outlook and it will determine the possible trend for the week. 

 

 

 

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Information on this page is solely for educational purposes only and is not in any way a recommendation to buy or sell certain assets. You should do your thorough research before investing in any type of asset. Learn to trade does not fully guarantee that this information is free from errors or misstatements. It also does not ensure that the information is completely timely. Investing in the Foreign Exchange Market involves a great deal of risk, resulting in the loss of a portion or your full investment. All risks, losses, and costs associated with investing, including total loss of principal and emotional distress, are your responsibility. 

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