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Analysts at Citibank consider that the US Dollar Index (DXY) can potentially drop a further 4 – 5% in 2021 to the 85.50 – 86.50 level. They warn the bulk of the DXY decline is likely to take place over 6 months from end Q1 – end Q3, which may support the Australian dollar. They forecast AUD/USD at 0.78 in a three month period, and at 0.81 in a six to twelve-month horizon. 

Key Quotes:

“The dollar drifted lower after Federal Reserve Chair Jerome Powell struck a dovish tone, saying the economy remained far from the Fed’s goals and he saw no reason to alter its highly accommodative stance “until the job is well and truly done. The headline was supportive to AUD.”

“Through 2021, AUD should continue to trade high beta to riskon/global growth developments. The expected wide scale rollout of a vaccine, our expectations for a reflationary 2021 and associated weaker dollar, therefore implies AUD appreciation. Aussie should be additionally supported by the continued strong economic recovery in China, given the two countries trade links.”

“AUDUSD’s RSI retreated from overbought level but still stayed above the upward trendine, with the support at 0.7482—0.7516 range and resistance at 0.7820 and 0.8136.”