The Aussie has resisted its American namesake for a long time, but was forced to retreat after disappointing retail sales data in the U.S., which contributed to the sell-off in the stock market. The indicator fell by 0.7% m/m in December, which was its third decline in a row and once again underlines the difficulties facing the U.S. economy. Fiscal and monetary incentives are good, but until there is progress in the war against COVID-19, you shouldn't expect people to actively spend money.
Pessimistic forecasts for the U.S. dollar for 2021 allowed the bulls on AUD/USD in early January to raise the pair's quotes to the highest levels since spring 2018, however, the storming of the Capitol and the associated impeachment of Donald Trump increased political risks in the U.S., returning investor interest in the U.S. dollar. Furthermore, the Blue Wave boosted the yield on Treasury bonds, increased the attractiveness of US-issued assets, and strengthened the USD index correction.
The Australian dollar has been stable for a long time, counting on strong statistics on China and the commodity market. Unfortunately, the strengthening of the U.S. dollar has led to a pullback in the prices of many commodities. Although unlike many other countries, China's economy grew by 2.3% in 2020 (in the fourth quarter - by 6.5%, which is faster dynamics than before the pandemic), nevertheless there are several pitfalls that should be noted.
Dynamics of Chinese GDP
Yes, Beijing has dealt with the first wave of the pandemic very effectively, but China is now registering new cases of COVID-19, and who knows how it will be this time? The transfer of power from Donald Trump to Joe Biden reduces the risks of a resumption of the trade war, but the new American president is unlikely to abandon the duties imposed by his predecessor on $370 billion of China's imports. Which, by the way, does not fulfill its obligations under the deal concluded on January 15, 2020. China promised that it would buy U.S. goods for $159 billion, but in fact, it turned out to be $82 billion (52%). Of course, you need to take into account the pandemic, but if the economy of an Asian state is growing faster than before, then why not increase purchases? Finally, the AUD/USD bulls are hampered by tensions between Canberra and Beijing.
Still, the outlook for the Australian dollar looks optimistic in my opinion. Despite the strengthening of the U.S. dollar, iron ore, a key component of Australia's exports, continues to grow. The scale of the Canberra-Beijing trade war is small, and an accelerated vaccination process, a recovery in the global economy, and an improved global risk appetite will catalyze the AUD/USD rally. In my opinion, strong statistics on the labor market, business activity, and retail sales of Australia should be used for purchases of the pair with targets at 0.78 and 0.792.
Technically, the AUD/USD correction may continue with the target of 61.8% according to the Gartley pattern. A pullback from the support at 0.759-0.7595 will be a signal for the formation of longs.
AUD/USD daily chart
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