According to economists at MUFG Bank, the collapse in US yields and the better prospects for global growth as COVID-19 vaccines are rolled out is likely to mean further AUD gains this year after a 10% gain last year. During 2020 the Australian dollar strengthened against the US dollar from 0.7017 to 0.7714.
See –
AUD/USD Price Forecast 2021: Winning the covid crisis insufficient for the aussie to withstand Chinese boomerang
Key quotes
“Central banks are likely to be very reluctant to stand out by portraying a scenario of much earlier removals of easy monetary stances. Hence, growth recoveries initially will prove important as that will ultimately dictate longer-term yields as market expectations shift. The starting point already suggests an uphill battle for the RBA to convince the markets that it will be maintaining loose monetary policy for as long as other G10 countries. The 10-year government bond yield is higher than the US yield, currently trading 5bps over – the only major developed economy with a higher yield.
“Real GDP is still 4.2ppts below the pre-covid peak. Based on consensus growth estimates, real GDP will surpass the pre-covid GDP level in Q3 2021. The output gap projection in Australia doesn’t warrant continued aggressive RBA easing and will only persist to try and slow AUD strength – but the Australian dollar is still set to advance this year.”
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