The outlook for the Australia dollar

Information is not investment advice

After February’s rally to the highs of 2018, the stronger US dollar pulled AUD/USD below the 0.77 level. The rapid vaccine distribution in the US and great fiscal and monetary stimulus are among the reasons why investors now turn their heads to the US currency. Still, major analysts anticipate the AUD getting back its strength in the third quarter of the year.

According to Westpac’s Chief Economist Bill Evans, the Australian dollar is significantly undervalued. Analyst and his team set the end-year target for the currency at 0.82! They expect a return to the “risk-on” investment approach in the second half of 2021. At the same time, global year-average growth is forecast to post around 6%, while the Australian economy is set to show an above-trend growth of 4.5% through 2021, up from the 1.1% contraction during 2020. These facts are in favor of the Australian dollar’s performance as well.

Another interesting observation by Westpac is connected with a correlation between the equity market and the AUD. Westpac points out that the bullish rally in the stock market plays a supportive role for the aussie.

All in all, AUD/USD looks attractive for buying on dips, than selling on the rallies, according to the bank. That is, we can expect the pair to return to the highs close to 0.8 in the third quarter of the year. This is a wonderful piece of news for the aussie bulls.

Technical picture

After several days of consolidation, here comes the sunny weather for the Australian dollar! The aussie broke above the descending trendline on Wednesday and strengthened towards 0.7780. If sellers try to pull the pair lower, it will return below the trendline and face the first obstacle that lies at the lower border of the recent consolidation range at 0.76. After the breakout of this level, sellers will face the next obstacle at 0.75.

FBS Analyst Team

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