Thanks to recent developments in the commodity market, the Australian dollar has managed to top the G10 currency rating since the start of the armed conflict in Eastern Europe. What will happen to AUDUSD and EURAUD when the war is over? Let’s discuss the topic and make up a trading plan.
Weekly Australian dollar fundamental analysis
Everyone can’t be right. The Australian dollar hit a 4-month high against the US dollar. The AUD is currently the best G10 performer since the outbreak of hostilities in Ukraine. Hedge funds continue to sell it. Their net shorts in the week ended March 8 reached the highest level since September 2015. Time will tell who will have the last laugh. In the meantime, follow the world events.
Dynamics of AUDUSD and AUD leveraged funds’ net positions
AUDUSD bulls are helped by the strength of the commodities market, the relative resilience of US stock indices to problems from Eastern Europe, and the fact that the RBA officials have finally said that a cash rate increase in 2022 is possible. Bloomberg experts believe that this will happen in August. The derivatives market is counting on June. However, the Fed’s monetary restriction looks much faster. CME derivatives are counting on six acts of monetary tightening. As a result of which the federal funds rate could rise to 1.75%.
Australia’s 3.5% rise in inflation and 2.3% in wages, is definitely outpaced by the US. Although the core CPI rose to 2.6% for the first time since 2014, which is above the middle of the target range of 2-3%, the RBA does not seem to be in a hurry. Philip Lowe and his colleagues closely monitor the labor market. They do not have a clear plan. The rate may be raised in 2022, but this is not guaranteed.
Dynamics of cash rate and Australian inflation
The stability of the US stock indices is explained by several reasons. Historically, wars have not had an irreversible impact on US stocks, probably due to the significant territorial distance of the market from the epicenter of the conflict. Russia’s share in trade with the rest of the world, except for commodities, is insignificant. The world economy has become 40% less energy-intensive since 1990. Finally, oil is in deep backwardation, which signals that Brent will not stay above $110 per barrel for long. The last factor could seriously hurt the Australian dollar.
The fact is that the commodity market has become the main driver of the AUDUSD rally. Its assets grew strongly due to concerns about supply disruptions. As the armed conflict in Ukraine drags on, the likelihood of a ceasefire and withdrawal of troops by diplomatic means increases. This will certainly have a negative impact on raw materials. As a result, the winners can instantly turn into losers. This also applies to Aussie.
In my opinion, oil and other commodities are moving from rapid growth to consolidation, which allows a divergence in monetary policy to come to the fore. As a result, it becomes possible to add up to the AUDUSD shorts, formed earlier when the price rebounded from the resistance at 0.735. Including if the pair consolidates below the support at 0.724. Increasing chances of a diplomatic resolution of the conflict in Eastern Europe will allow entering EURAUD purchases on a breakout of resistance at 1.517.
Price chart of AUDUSD in real time mode
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