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Analyzing AUD/USD for short-term trade opportunity

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In their discussion of international economic developments since the previous meeting, members noted that the global economy was in the early stages of recovery following the largest contraction in decades. Making observations on the US, Europe and China members of the RBA noted the following. In China, where the recovery was most advanced, and in some other Asian economies where health outcomes had been relatively favorable, the contraction in GDP earlier in the year had been largely if not fully reversed. However, GDP in the September quarter in Europe and the US remained well below pre-pandemic levels, even after the rebound in the quarter, and this was expected to be the case for some time. Members emphasized that the global outlook continued to be subject to a high degree of uncertainty. The main source of uncertainty related to the evolution of the pandemic, and the policy and behavioral responses to it. Indicators suggested that the pace of the global recovery had faltered and was quite uneven. The resurgence in new cases of the virus in recent weeks threatened the recovery in some economies, notably in Europe.

In reviewing the updated set of forecasts for the domestic economy, RBA panel observes that the outlook for GDP in the near term had been revised up a little. They add that, since the onset of the pandemic, consumption, business investment and labor market outcomes had generally been better than initially feared, with significant policy support a key factor during and after the intensive period of lockdowns. However, the recovery in activity was expected to be modest in the context of the largest peacetime contraction in GDP since the Great Depression, and members acknowledged that GDP was not expected to return to its pre-pandemic level until the end of 2021, a good 13+ months out from here. Members considered 3 scenarios in their discussion of the outlook. In the baseline scenario, GDP growth was expected to contract by around 4 per cent over 2020, before growing by 5 per cent over 2021 and by 4 per cent over 2022. This assumed no additional significant COVID-19 outbreaks and that domestic activity restrictions would continue to be lifted, although restrictions on international travel would remain in place until the end of 2021.

Given the high degree of uncertainty about the outlook, 2 alternative scenarios were considered, based largely on different assumptions about health outcomes and restrictions on activity. A plausible downside scenario involved further significant outbreaks of the virus in Australia and abroad. This would result in renewed lockdowns, further delays in the opening of international borders and a material deterioration in household and business confidence. The recovery would be substantially delayed in this scenario, with the level of GDP still falling a little short of pre-pandemic levels by the end of the forecast period in 2022. A stronger economic recovery than envisaged in the baseline scenario was also considered, where additional progress in the control of the virus is achieved, leading to a more rapid easing of restrictions and a faster rebound in confidence, private demand, and services exports. In this scenario, the level of GDP would exceed pre-pandemic levels in mid-2021 and would be a couple of per cent higher than in the baseline scenario by the end of 2022.

This meeting which concluded a couple of days back has put some pressure on the Aussie dollar which had been rallying in the more recent past against the USD. For our readers today, we present a simple tabular analysis of how to go about trading the forex pair AUD/USD and the underlying currency which trades on the CME which symbolically is represented in ways such as AUD or 6A by some brokerages.

Trade Idea

At TradeGuidance we try to make the short-term traders’ life simple by presenting actionable trade ideas as the one presented above. If you like what you read and see on here, follow us on Twitter at TradeGuidance where we post a lot of trade ideas which we also trade to ourselves regularly. Always use stops and trade only with risk capital. As a trader, be honest with yourself. In your trading/investing and learning process you will make costly mistakes, but the key point is if you always used qualified techniques to trade the market while factoring in news events and managed risk appropriately.

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