The Australian dollar fell against the U.S. dollar in March, but hedge funds remain bullish on the declining currency.
The currency fell 1.4% in March and performed its worst in five months against the U.S. dollar. However, the economy exceeding expectations indicates that the Aussie dollar could rebound.
Bulls overlook the currency’s weakness in favor of their forecasts that the currency will strengthen. By the end of March, investors had increased their net long Aussie positions to the highest since last November according to Commodity Futures Trading Commission data.
Supportive Economic Data
This week’s Australian employment data could be a key sign prompting the currency to go higher. In February, the unemployment rate fell to 5.8%, its lowest point in eleven months and a further decrease this week could confirm that the economy is rising. The Gross domestic product increased by a higher-than-expected 3.1% in the final quarter of 2020. Treasury yields reached a near-term high. Iron ore prices remain high and close to this year’s peak, further supporting the Aussie dollar.
Commonwealth Bank of Australia strategists forecast that the currency “can appreciate further because it is undervalued relative to its fundamentals.” The group also forecasts an increase in commodity prices for 2021.
They also wrote that a possible reduction in Chinese steel production and carbon border fees could affect the currency’s expected rise. Despite the risks, they still see the currency rising against the dollar in the next months and even expect an $0.80 rise by June.
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