HomeWill AUD and NZD Outperform Peers in 2021?

Will AUD and NZD Outperform Peers in 2021?

The dominant theme in 2020 in the FX market was a lower U.S. dollar. While the initial market’s reaction was to go long the U.S. dollar when the stock markets collapsed, the Fed made sure that there are enough dollars in the system for everyone. 

From that moment on, the U.S. dollar’s decline did not stop. Because the FX dashboard is made of currency pairs, the exchange rates show the value of one currency in terms of another. In other words, if the dollar declined, what other currencies performed?

AUD and NZD – The Strongest Fiat Currencies in 2020

2020 will remain known as the year of the COVID-19 pandemic. As such, it is worth splitting the year in two parts – before and after the COVID-19 virus was declared a pandemic.

If we use such a metric, the AUD outperformed any other major currency – up 9.7% for the year and 39.7% from 2020 lows. In other words, buying the dip in 2020 did miracles for the AUD bulls. The same is valid for the NZD, which ended the year up 31.4%, outpacing the Euro and even the Mexican Peso – one of the other stronger currencies of the year.

Containing the Virus

2020 brought many interesting events. For example, the price of oil settled below zero for the first time in history. Also, investors were surprised to see equities making new all-time highs during the worst economic crisis ever.

If there was one thing that did make sense in 2020, it was the AUD and NZD strength. The two countries, Australia, and New Zealand, successfully contained the virus to such an extent that New Zealand was declared virus-free. While the world struggled with high infection rates, the two economies down under recovered quickly, and their currencies accurately reflected that. Therefore, we can say that the strength of the Australian and New Zealand’s economies was accurately reflected in the AUD and NZD performance for the year.

Moving forward, the world seems ready to catch up. Tremendous vaccination efforts may help other economies to catch up, but do not expect the AUD and NZD to give up their gains easily. The two currencies are also strongly correlated to the U.S. stock market as part of a risk-on movement – for as long as the risk-on environment continues, the chances are that the AUD and NZD will continue to outperform their peers.

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