9 Mar 2016
AUD: Failing fundamental tests of strength - ANZ
Daniel Been, Senior FX Strategist at ANZ, suggests that the AUD has remained remarkably resilient which has driven the AUD back into territory that suggests it is overvalued.
Key Quotes
“This misalignment is most striking relative to the performance of other risk assets, like Asian equity markets.
We find no fundamental justification for this outperformance and continue to expect the AUD to reverse recent gains and decline to fresh cycle lows.
We cannot find a fundamental reason for the recent outperformance of the AUD. One final possibility is that the strength is simply a result of USD weakness as the market lost faith in the Fed’s ability to raise rates in 2016.
But, if this is the case, we do not see it as a sustainable driver of AUD strength. If the Fed is not raising rates because weak global growth is dragging US momentum lower and tightening financial conditions, then this is not a reason to buy a cyclical currency like the AUD, particularly as there is no evidence of a sustainable structural shift in the underlying drivers of the AUD. As such, we maintain our forecasts and continue to expect the AUD to fall to USD0.64 in 2016.”
Key Quotes
“This misalignment is most striking relative to the performance of other risk assets, like Asian equity markets.
We find no fundamental justification for this outperformance and continue to expect the AUD to reverse recent gains and decline to fresh cycle lows.
We cannot find a fundamental reason for the recent outperformance of the AUD. One final possibility is that the strength is simply a result of USD weakness as the market lost faith in the Fed’s ability to raise rates in 2016.
But, if this is the case, we do not see it as a sustainable driver of AUD strength. If the Fed is not raising rates because weak global growth is dragging US momentum lower and tightening financial conditions, then this is not a reason to buy a cyclical currency like the AUD, particularly as there is no evidence of a sustainable structural shift in the underlying drivers of the AUD. As such, we maintain our forecasts and continue to expect the AUD to fall to USD0.64 in 2016.”