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AUD/USD & ASX 200 Price Outlook: Aussie Leads Recovery but Stocks Lag

AUD/USD & ASX 200 Price Outlook: Aussie Leads Recovery but Stocks Lag

Peter Hanks, Analyst

AUD/USD & ASX 200 Forecast:

  • AUD/USD is up 13% from its March 18 lows and has been a beacon of strength among risk assets
  • Nevertheless, the ASX 200 lags its major equity market counterparts
  • What does this mean for the Australian Dollar and ASX 200?

Australian Dollar & ASX 200 Price Outlook: Aussie Leads Recovery but Stocks Lag

The Australian Dollar has charged higher in recent weeks as it continues to recover lost ground from the abrupt declines suffered across all risk assets in late February and much of March. Now more than 13% off its March 18 low, AUD/USD has been a leader among growth-sensitive markets but its equity counterpart, the ASX 200, has lagged comparable indices in other developed regions.

ASX 200 Price Chart: Index Lags International Competition

AUD/USD & ASX 200 Price Outlook: Aussie Leads Recovery but Stocks Lag

Chart created in TradingView

Evidenced in the chart below, the Australian Dollar has considerably outperformed the ASX 200 relative to one of the other leading risk assets, the S&P 500. Using the US index as a benchmark, we can see not only the divergence between the two Australian assets, but also the formidable strength of the S&P 500 which has outperformed both AUD/USD and the ASX 200 since mid-March.

AUD/USD & ASX 200 Price Charts Relative to S&P 500 (January 2020 – April 2020)

AUD/USD & ASX 200 Price Outlook: Aussie Leads Recovery but Stocks Lag

Chart created in TradingView

That being said, the ASX 200 may recapture lost ground relative to the S&P 500 in the weeks ahead should risk appetite continue, but AUD/USD appears to be the more attractive trading opportunity of the two because of its recent strength and because it may benefit from dwindling safe haven demand for the US Dollar. Consequently, AUD/USD may continue to climb on the back of risk appetite but also as normalcy returns to global markets and the demand for Dollar-denominated safety lessens.

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AUD/USD Price Chart: 4 – Hour Time Frame (March 2020 – April 2020)

AUD/USD & ASX 200 Price Outlook: Aussie Leads Recovery but Stocks Lag

Therefore, optimistic equity traders might look to capitalize on the relative strength of the Aussie Dollar. Should risk trends continue, AUD/USD may probe overhead resistance once more, while support around 0.62 will aim to keep price afloat in the interim. Further still, IG Client Sentiment Data reveals retail traders just recently shifted their bias to the short side, suggesting continued AUD/USD strength may be ahead.

AUD/USD MIXED
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -1% -18% -11%
Weekly 0% 11% 6%
What does it mean for price action?
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--Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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