Will the economy push the AUD to the top of the currency world?


The Australian dollar “could be the star of the forex market” as it is particularly undervalued. However, he can only become the proverbial star of forex once the world “gets rid of its current list of evils”. This is the opinion of Kit Juckes, head of FX research at Société Générale. Like everything in the financial world, one person’s opinion can be countered by the opinion of others. That’s par for the course in finance, but that doesn’t invalidate Juckes’ position. That being the case, it is worth exploring whether or not the Australian Dollar (AUD) could be set for a meteoric rise.

A world of currencies

To do this, it is worth explaining what we mean by forex. Let’s do this as a practical example. With forex trading with AvaTrade in Australia, you get access to a decentralized exchange where international currencies are traded. Currencies are traded in pairs, which means you are betting the value of one currency against another. Specifically, a currency pair refers to how much of one currency (the quote currency) you need to buy a single unit of the other (the base currency).

This type of trading is extremely popular. In fact, forex is the most liquid financial market in the world. Therefore, when it comes to statements such as those made by Juckes and quoted on Pound Sterling Live, they mean something. Indeed, if the AUD becomes one of the strongest currencies in the world, this not only has implications for the foreign exchange market but also for Australia. Essentially, a strong currency translates to a strong economy.

Will the landing be hard or soft?

So the question is how the AUD could become the proverbial star of the forex world. According to Juckes, a lot depends on whether the coming months result in a “hard” or “soft” landing. According to Societe Generale’s definition, a hard landing is when the United States and the Eurozone experience a recession. This, in turn, creates favorable macroeconomic conditions for the US Dollar at the expense of other currencies, such as the AUD. A soft landing will occur if the United States and the Eurozone experience a cyclical slowdown in economic growth, which is explained in detail by The Business Professor.

This slowdown makes it possible to bring interest rates and inflation closer together and, ultimately, to avoid a recession. If a soft landing occurs, Juckes thinks it will help the yen and Australian dollar. Are we heading for a hard landing or a soft landing? This is a difficult question to answer because the current economic situation is so finely balanced. Wall Street stock prices were trading higher in early July on the back that interest rate hikes might not be as aggressive as many thought, which we covered here on MarketBeat. This is what central banks are currently facing.

Economics is a matter of balance

Raise interest rates too aggressively and it could cause a recession. Don’t push them high enough and inflation could spiral even further out of control. If central banks find the right balance, it could help fight rising inflation and prevent recessions in the United States and Europe. This would create the conditions for what Juckes sees as a hard landing for the AUD. If the central banks are wrong, the Australian dollar might be able to thrive.

The performance of the AUD in mid-July 2022 suggested it could take a strong position as it was up more than 1.2% against the US dollar, which we have been following with interest here at MarketBeat . However, things can and often do change quite quickly in the forex markets. This means that Juckes could easily be right when he says the AUD will rise. However, he might as well be wrong. Therefore, the lesson here is that you shouldn’t be obsessed with just one view on forex or financial markets in general.
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