Guess Who’s Back
Market Update: 20 October 2020
Themes for 2021, brought to you by Thomas Averill
The US election: Although movements in the polls and wrangling over the stimulus package are generating near term volatility that will likely continue, and potentially escalate in the case of a contested result, our 2021 USD view is agnostic to the outcome of the US elections. That being a continuation of the USD bear trend punctuated by brief periods of rapid appreciation on deleveraging. To that end, we expect the risk on/risk-off dynamics to be a driver of AUD price action in a similar fashion to post the GFC.
Vaccine: Vaccine headlines continue to drive investor risk appetite and consequently market volatility. Until a sustainable solution is found this will remain the case.
Fiscal stimulus & deficits: Whether Trump or Biden is victorious, both will pursue fairly aggressive fiscal stimulus with little regard for the ballooning US deficit. While the stimulus maybe supportive of asset prices, we expect the deficit consequences to apply pressure to the USD and grab more headlines in 2021.
Leverage/QE: The global money printing of major central banks has significantly increased leverage in the financial system, resulting in the risk on/off price action in financial markets and this will likely continue while monetary policies remain at extremely loose settings. It’s also worth noting that this policy action typically also results in hard asset price inflation, which is particularly evident in the market’s appetite for Gold, we expect this to continue (although in a volatile fashion) in 2021. This is will also factor in other commodity prices, which should be supportive of the Australian economy and the AUD.
China: China trade concerns are still holding back the AUD in the crosses, however, we expect a keenness on all sides to re-engage in constructive dialog after the US election and we thus expect the AUD, to also make gains more broadly in 2021.
Contact the Inside Track Research Team for more info: +61 2 8916 6115
The information contained in this report is provided by Rochford Capital Pty Limited – ACN 143 601 594, AFSL 361276. This report is provided for general information purposes and is solely intended for use by persons who are Australian wholesale clients. To the extent that any recommendations or statements of opinion constitute financial product advice, they constitute general financial product advice only. As such, any advice contained in this report does not take into account your objectives, financial situation or needs. You should consider whether this advice is appropriate for you, and seek independent professional advice before making any investment decision.