Reasons Why AUD to USD Could Skyrocket
After declining for the first two weeks of 2016, the Australian dollar is starting to move higher. Don’t be surprised if this is the beginning of a bullish run in the AUD to USD exchange rate.
Remember: currency pairs trade on how one economy is doing well compared to the other. For the AUD/USD pair to go higher, the Australian economy has to do well. As it stands, we see this happening.
Business Confidence and Charts Telling AUD/USD Could Be Much Higher
Recently, the National Australia Bank Group (NAB) released results of the monthly business survey for the month of December. At the very core, this survey looks at business confidence and business conditions in the Australian economy.
The chief economist at the NAB Group, Alan Oster, said, “While recent big declines in oil and equity markets highlight potential risks to the global outlook, relatively positive business conditions appear to have, so far, acted to reassure business sentiment.” (Source: “Monthly Business Survey – December 2015,” National Australia Bank Group, January 25, 2016.)
Business conditions in the Australian economy remained strong. The NAB business conditions index was registered at +7—well above the long-run average of the survey of five. Any figure above zero represents business conditions improving.
Digging into the details, exports are picking up, capital expenditure remains strong, and companies in the Australian economy are starting to restock. Furthermore, mining and manufacturing industry is ticking higher. Other industries like retail and transportation are also showing improvements.
Now, as for the U.S. economy, we continue to see headwinds.
When we look at regional manufacturing data, it looks as if businesses are stalling. For instance, just look at the chart below of general business conditions in the state of New York.
In November, business conditions in the New York region declined to the lowest level since 2009 and they still remain in the contraction territory.
No matter how you look at it, these are all bullish developments for the AUD to USD pair.
From a technical point of view, we see the bulls could be in for a ride in the AUD/USD pair. Please look at the chart below and pay attention to the circled area on the indicator at the bottom.
Chart courtesy of www.StockCharts.com
Certainly, the AUD to USD pair has seen a massive decline in the past few years. Here’s what you really need to pay attention to: at the bottom of the chart, we have plotted an indicator called the “Ulcer Index.” At the most basic level, it tries to tell the downside risk. Look at the circled areas; whenever this indicator peaked, we saw massive downside.
As it stands, this indictor is declining and suggests that risks of further downside in the AUD/USD are diminishing. This shouldn’t go unnoticed whatsoever.
AUD to USD Outlook for 2016
I continue to see the AUD to USD exchange rate as one of the best-performing currency pair in 2016 compared to other major currencies. The data and charts suggest this could happen sooner than later.