The AUD to USD exchange rate is down year-to-date, but don’t jump to conclusions just yet. The Australian dollar is building the foundation for a massive move to the upside.
Bullish AUD to USD Outlook Ahead
Look at the long-term chart of the AUD/USD pairing below and pay close attention to the area marked off by the red rectangle.
The level the AUD to USD pair currently trades at has acted as a support since 1985—that’s for more than 30 years! The only time it fell below that level in the past 30 years was between 2000 and 2004.
Why is this significant to mention? From a technical analysis perspective, long-term support levels are very difficult to break. There’s usually a solid presence of buyers and sellers tend to dissipate if they are unable to drive the currency lower. You can see for yourself that whenever the AUD/USD exchange rate fell within the range of $0.70 to $0.60, there was a move to the upside just a few months down the road.
Chart courtesy of www.StockCharts.com
The 0.70 level has been tested since September and hasn’t been broken yet.
From a fundamental point of view, there are solid reasons for the AUD to USD exchange rate to see an upside move as well.
In its statement on monetary policy in November, the Reserve Bank of Australia said, “The Australian economy has continued to grow at a moderate pace and the rebalancing of activity away from the resources sector is continuing. Overall, growth appears to have picked up in the September quarter, as resource exports and dwelling investment returned to growth following temporary weakness in the June quarter.” (Source: “Statement On Monetary Policy – November 2015,” Reserve Bank of Australia, last accessed January 12, 2016.)
And the central bank expects growth in the economy in 2016 and in 2017. It expects Australia’s gross domestic product (GDP) to grow in the range of two to three percent in 2016 and between 2.75% and 3.75% in 2017. If it even meets the lower end of the growth forecast, it would signal a solid improvement year-over-year.
For the U.S., the Federal Reserve expects the U.S. economy to grow by 2.4% in 2016 and increase by 2.2% in 2017. (Source: Federal Reserve, last accessed January 12, 2016.) You see, the U.S. economy is expected to decelerate. Also, over the past few years, we have seen the Federal Reserve lower its guidance for U.S. GDP. Don’t be shocked if it does the same this year as well.
This will surely impact the way the AUD to USD pair trades. Growth rates do matter.
AUD/USD Outlook for 2016
My take on the AUD to USD exchange rate is well documented in these pages. I am on record for saying Australian dollar and U.S. dollar could be the best performing currency pair among major currencies. As of now, my stance remains the same.
For my opinion to change, the AUD/USD rate would have to break below its lows made in 2009, which is around 0.60, or roughly a 10%+ decline. If it actually breaks below that level, we could be in for a major move to the downside. Time will tell more, but for now, I see a bullish outlook ahead.