AUD/USD Risks and Rewards.

AUD/USD Risks and Rewards.

The AUD historically tracks several different variables however some more specific variables have a larger impact historical one being US equities and global manufacturing data.

With the hit of COVID 19 the AUD/USD saw an extreme drop going down past 10-year lows to a low of 0.5506, the last time we were there was October 2002.

The outlook for the AUD/USD is an uncertain one, historically the AUD has been very bullish on the back of a crash as seen in the below graph, we have again seen this in the last few months already, however, are we in for a V shaped recovery or could a potential second wave make this a more long lasting crash with this just being a bounce.

Over the short-term markets have been rallying on the back of strong US equities markets from large stimulus packages and the improvement of China manufacturing, additionally a positive announcement of a potential vaccine, this very well could be the trend.

The short-term risk remains with the AUD/USD however, this current rally could very well be short lived. How much can the AUD rebound if a vaccine is discovered and we get back to normality quicker than expected or are we going to see this tumble back down with a second wave and more financial destruction, one thing is for sure 2021 going to be another interesting year for FX markets.

Source: Reuters graph, past 40 years.