I came across a Bloomberg article advocating caution on the recent strength of the AUD and that a correction is due at 0.7184 or earlier.
The AUD’s trajectory has increased sharply, as the optimism surrounding the global recovery from COVID-19 has been favorable. The risk on assets has roared in recent days, which seems strange given the risks that exist: Brexit, trade tensions between the United States and China, tensions between China and Australia, ECB decision later during the day, headwinds from the four bursars concerning the European relief fund. , not to mention the risk of infection from the second wave of COVID-19. However, the risk on the rally continues and carries the AUD with it. See the table below to see the relationship between the AUDJPY and the S & P500.
A correction due?
Australian Treasurer Josh Frydenburg has admitted that the economy may also be in recession after Q1 GDP is printed and Q2 projections are forecast. In addition, if the AUD continues to rise, the RBA may fear having to raise interest rates as the economy may head into recessionary territory. If the RBA starts buying bonds on different maturities, the AUD will weaken.
American-Chinese and Sino-Australian tensions also want to weigh on the AUD. With around 30% of Australia’s GDP coming from China, any tension with the yuan hurts the AUD. This is why the AUD is often traded as a proxy for the yuan. Asset managers as a group are also short of net on the AUD, so watch out for any increase in the downside.