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AUD/USD: Bullish Run Coming To An End

May 05, 2020 2:00 PM ET1 Comment
Discount Fountain profile picture
Discount Fountain


  • The AUD/USD has started to dip after a bullish run.
  • The upward run of this currency pair has become increasingly divorced from market fundamentals.
  • Therefore, I see a decline for the AUD/USD ahead.

Last month, I made the argument that the Aussie dollar could be set for further gains against the greenback – primarily on the basis that the coronavirus pandemic has not hit Australia as hard as many other countries, and a drop in interest rates in the United States would likely mean less demand for the U.S. dollar going forward.

With that being said, the AUD/USD has been retreating since the end of April:

Source: investing.com

Even though the coronavirus pandemic has not had as severe an effect, Australia will still suffer economically as a result of the associated lockdowns and travel restrictions. Therefore, gains on the AUD cannot be sustained solely on the argument that Australia has been more shielded from the pandemic than other countries.

Indeed, markets seem to be taking the view that the Aussie dollar is now expensive and has seen an overly bullish run as a result of COVID-19.

It is now thought that the fair value of the AUD/USD stands at 0.61 as opposed to the current price of 0.64, which means that we could still be in for a further drop in the currency. Ultimately, the consensus appears to be that the currency’s rise has remained divorced from market fundamentals.

For one, coal prices in Australia have hit their lowest level since 2016.

Source: ycharts.com

Given that coal is one of Australia’s top exports, this will greatly reduce the amount of coal supplies that can be exported at a profit, and demand for the AUD will be weakened as a result.

Furthermore, with US-China tensions having increased significantly regarding a dispute over the origins of COVID-19, this has sparked renewed fears of a trade war escalation. Such a development could significantly hinder growth in China, which in turn would have a considerably negative impact on Australian exports. As

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Discount Fountain profile picture
I am an independent investor with an interest in analyzing stocks across the consumer, finance, telecommunication, and travel sectors. As a data scientist, I also have a great interest in using data tools to better understand a company's financial position.Some examples include:- Analysing total room revenue across brands for Hyatt Hotels using data visualisation: https://seekingalpha.com/article/4632039-hyatt-hotels-stock-hyatt-regency-and-china-revpar-growth-impressive- Building a Monte Carlo simulation in Python to analyze loss ratios for Zurich Insurance Group (ZURVY): https://seekingalpha.com/article/4605533-zurich-insurance-group-premium-growth-low-loss-ratio-encouraging- Calculating seasonality of customer lifetime value (LTV) for AT&T: https://seekingalpha.com/article/4634204-att-stock-growth-customer-lifetime-value-necessary-upsideDisclaimer: All of the author's articles are written on an "as is" basis and without warranty, with no guarantee of accuracy or completeness. They represent the author's opinion only and in no way constitute professional investment advice. It is the responsibility of the reader to conduct their due diligence and seek investment advice from a licensed professional before making any investment decisions. The author disclaims all liability for any actions taken based on the information contained in any articles published.

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Comments (1)

short audusd what*s the s/l
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