The Australian Dollar (AUD) has the potential to outperform its peers, with thanks two a couple of fundamentals factors in our view.
Firstly, it is important to note that there is a strong correlation between AUD/USD and Gold prices (XAU/USD). On a long-term basis, the Aussie follows similar price patterns to the Gold price.
Australia is an important gold producer (over 11% of global production in 2019)
Australia’s gold reserves of 9,800 tonnes count 18% of global reserves
The Gold Price is by rule negative correlated to the US Dollar
The Aussie and Gold Price correlation is primarily driven due to the domestic Australian gold production. Australia's Gold exports value is about 5 billion USD a year. Note that the largest gold producer in the world is China and South Africa follows. Australia is also a large exporter of uranium, coal and some other metals.
In addition, Australia's gold reserves are the highest reserves in the world. In the second position is South Africa (6,000 tonnes) and in the third position is Russia (5,000 tonnes).
Getting into the details of this first point, Gold prices have been rising at quite some pace this year, particularly having a strong month in April. It is in large thanks to the continuation of
global central bank stimulus. The outbreak has pushed governments and central banks around the world to unleash unprecedented fiscal and monetary support
Note that Gold is considered a safe store of value during economic or political uncertainties. It also historically tends to benefit from widespread stimulus measures from central banks since it's seen as a hedge against inflation and currency debasement.
Moving on to the second point, regarding Covid-19 Australia has been seen as one of the nations best containing the outbreak. As per recent statistics, Australia is keeping new cases down and rank number two out of the most Covid-19 infected countries base on; recovery rate, total cases per capita/length of the outbreak, active cases per capita and tests per capita.
Daily chart view AUD/USD & XAU/USD
AUD/USD price action has formed a potential bull flag, of which the price has been making a break out of within recent trading. It does leave the door open to further upside pressure, with Gold prices.
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