The economists predicted that US dollar might tumble to its lows of 2018 due to the massive state intervention that would take to implement Green New Deal.
The Australian dollars are a safe asset, which will allow avoiding risks related to the dollar tumbling if Joe Biden wins the US election, the analysts of Goldman Sachs Group stated on Tuesday. Despite the economic war of Communist China against Canberra, with recent salvos that include halt on the import of coal, Australia, with its stable democratic institutions and relatively strong economy, reduces risks in the investment, according to the analysts.
Economists predicted that the US dollar might tumble to its lows of 2018 due to the semi-secretive Green New Deal plan of the massive state intervention in the free market economy.
The risks are skewed toward dollar weakness, and we see relatively low odds of the most dollar-positive outcome - a win by Mr. Trump combined with a meaningful vaccine delay, strategists including Zach Pandl wrote in a note.
Until now, the media prevented the public debate on the real cost of the Democratic strategy, which will lead to the radical transformation involving rising employment costs and new regulations for the industry.
Federal Australia's budget ignores negative risks for exports
The sudden appreciation of the Aussie may be a mixed blessing for Canberra, which has just presented the economic recovery plan that does not cover possible risks. A more expensive currency will lower competitive positions for the Australian exports trying to offset supply disruptions due to the resurgence of the pandemic. It will also involve an increase in certain consumer goods, which are dependents on the imported parts.
The budget presented by Treasurer Mr. Frydenberg completely leaves these factors uncovered heightened risks of a more negative impact on the badly hit economy. Mr. Frydenberg will most likely be forced to review the budget margins adding more state financial assistance following an example of a well-thought Western Australia's economic strategy.
Goldman forecasts some more positive news on vaccines as a reason for the depreciation of the US currency.
US stimulus increases competitive position of American exporters
A ‘blue wave’ U.S. election and favourable news on the vaccine timeline could return the trade-weighted dollar and DXY index to their 2018 lows, the bank strategists suggested.
The low-priced US currency creates favourable conditions for US exports, increasing its competitive position. It also cuts the prices of imported goods aiding, significantly households.
But the interest of the big investors who seek fast and high risk-free profits are different from the average households that are focused on saving costs. The investors have heavily invested in the US dollar, although the Fed made clear it will not cut access to cheap loans due to the incredibly low-interest rates.
The ICE U.S. Dollar Index has fallen more than 3 per cent so far this year - trading just over the 93 level on Monday - as investors reacted to unprecedented pandemic-related monetary stimulus from the Federal Reserve and rock-bottom interest rates. The gauge traded below 89 in 2018, a level which would imply a further slide of more than 4 per cent.
Goldman joins the likes of UBS Asset Management and Invesco Ltd. in predicting a weaker dollar as, according to the mainstream polls, Mr. Biden extends his lead over President Donald Trump with less than three weeks to election day. The strategists also suggest buying the Euro and the Canadian dollar against the greenback.