Credit Suisse: Buy Australian dollar with both hands

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Via Credit Suisse:

As we highlighted in our Key Themes for 2021, bearish the USD remains a core theme for 2021, but a consolidation/recovery phase was expected in the early part of the year following the fall to our first core bear target and major support from the 2018 low. We believe this consolidation has the potential to last a while, but once it has run its course, the USD is expected to resume its bear trend. Our preferred expression to play for USD weakness is still the Commodity currencies, primarily ASD, with the EUR one of our least favorites. AUDUSD is currently taking a breather below thekey April 2018 high at.7816/20,but this consolidation looks like a potential bullish continuation pattern and the core uptrend remains intact, reinforced by the large existing “head and shoulders” base. Post this consolidation, a break above.7816/20should trigger a fresh move higher,with resistance seen next at .8000 and then the 2018 high at .8136. We also believe further strengthen AUD will be reinforced by higher Industrial Metals and our reflationary views. In support of our preference for AUD over EUR, EURAUD completed an important medium-term top in early 2021. Although the market has also shifted into a near-term range around1.5707/5684, we look for further weakness to unfold in due course, with next support seen at1.5500 and eventually at theDecember and June 2018 lows, as well as the potential uptrend from 2012 at1.5378/5275, where we expect to see a pause.

There is only so far that the Australian dollar can fall if EUR weakens given the latter will east away at a rising DXY. I also think that that the commodity play is cyclical, not structural and will peter out as China slows into H2 and 2022.

So, I agree that there’s more upisde for AUD ahead as USD falls some more but the low 80s are my target peak.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.