The latest report released by UBS indicates that despite increased volatility in the foreign exchange market due to the upcoming U.S. presidential election, the Australian dollar remains an attractive investment. It is expected to strengthen by the end of the year. A series of recent economic stimulus policies in China have led to a rebound in global commodity prices, becoming a key factor driving the rise of the Australian dollar. China is Australia's largest trading partner, and the close economic ties between the two countries make the Australian dollar's trend highly dependent on China's economic performance.
UBS points out that China's stimulus measures are gradually driving speculative funds into the market. At the same time, pension funds have significantly increased their positions in the Australian dollar, as evidenced by the recent rise in foreign exchange hedge ratios. This indicates that institutional investors remain optimistic about the Australian dollar's prospects, expecting it to benefit from the recovery in global commodity demand. Especially in the context of China's increased domestic demand and infrastructure investment, the rise in prices of major commodities such as iron ore, coal, and natural gas will provide strong support for the Australian economy, further boosting the Australian dollar.
However, as the U.S. election approaches, market volatility is entering a critical period. Due to the unpredictability of the presidential election outcome, volatility indicators in the foreign exchange market show that there may be short-term significant fluctuations before and after the vote. UBS warns that if polls fail to provide a clear winner, market anxiety will further increase, leading to more short-term tactical trades rather than sustained trend trading. This uncertainty may pose some short-term resistance to the Australian dollar, with the U.S. dollar potentially experiencing a temporary rebound in this context.
Nevertheless, UBS remains positive about the Australian dollar's outlook, believing that the pace of global economic recovery, particularly the rebound in Chinese domestic demand, will provide solid support for the Australian dollar. Notably, if China announces new fiscal stimulus measures this weekend, it is expected to further limit the downside of the Australian dollar and may even push it higher. China is one of Australia's most important export markets, and any policy changes from China, especially those related to infrastructure construction, will have a direct impact on the Australian dollar.
UBS also emphasizes that although the foreign exchange market will be affected by the uncertainty of the U.S. election and the global pandemic in the short term, the long-term performance of the Australian dollar is still supported by the commodity market and global economic recovery. The rebound in commodity prices provides a solid foundation for the Australian dollar, especially in the context of the continuous recovery of global demand. Australia, as a major global commodity exporter, gains a unique advantage for its currency.
With changing market expectations for Federal Reserve policies, further rate cuts or easing measures will pressure the U.S. dollar, indirectly supporting the rise of the Australian dollar. Therefore, UBS believes that betting on the Australian dollar strengthening by the end of the year remains an attractive strategy.
