May seasonality and trade policies to favor MXN over AUD in May
TRADE OF THE MONTH FOR MAY 2020
Over the last 20 years, May has been the second worst month of the year for AUDUSD with an average drop of 1.5%, In April, AUDUSD has been on a meteoric rise based on hopes that the Chinese economy will fare better than the rest of the world. Since China is the main export destination for Australian products and Australia was (until now) hardly hit by covid, it's clear to see where that optimism came from.
On the other side of the spectrum, the MXN has dropped by 20% vs. the USD since the start of the crisis. This is a clear panic reaction resulting from the fact that most Mexican exports go to the US, which has been hit hard by Covid-19.
However, there are clear signs on the horizon that these themes are about to reverse. Numerous governments around the globe are already signaling economic retaliation agains China, especially the US and Australia. This will lead to a renewed push for manufacturers to leave China and settle elsewhere, with Mexico being a prime candidate for relocation. As this will severely impact China's economy anew, not only will imports from Australia begin to fall, but the Chinese communist party will also start retaliating against Australia - a theme also on the horizon with the Chinese ambassador to Australia already pointing out the risk in the news.
Hence from a macro perspective, my trade of the month of May 2020 is short AUDMXN from 15.6 with a target of 13.8 and a stop loss at 16.2.
Over the last 20 years, May has been the second worst month of the year for AUDUSD with an average drop of 1.5%, In April, AUDUSD has been on a meteoric rise based on hopes that the Chinese economy will fare better than the rest of the world. Since China is the main export destination for Australian products and Australia was (until now) hardly hit by covid, it's clear to see where that optimism came from.
On the other side of the spectrum, the MXN has dropped by 20% vs. the USD since the start of the crisis. This is a clear panic reaction resulting from the fact that most Mexican exports go to the US, which has been hit hard by Covid-19.
However, there are clear signs on the horizon that these themes are about to reverse. Numerous governments around the globe are already signaling economic retaliation agains China, especially the US and Australia. This will lead to a renewed push for manufacturers to leave China and settle elsewhere, with Mexico being a prime candidate for relocation. As this will severely impact China's economy anew, not only will imports from Australia begin to fall, but the Chinese communist party will also start retaliating against Australia - a theme also on the horizon with the Chinese ambassador to Australia already pointing out the risk in the news.
Hence from a macro perspective, my trade of the month of May 2020 is short AUDMXN from 15.6 with a target of 13.8 and a stop loss at 16.2.
Comment:
Going well thus far. If all goes well, there will be an acceleration of the move this Thursday, when the Chinese will formally impose the new legislation on Hong Kong. Hold on, the ride is not over yet.