AUD: Extended bottoming process – SocGen

Alvin T. Tan, Research Analyst at Societe Generale, expects that the Aussie dollar will weaken against the US dollar from a combination of monetary and growth divergence in 2017.

Key Quotes

“The Chinese growth slowdown is also expected to resume next year. On the other hand, AUD/USD should hold above the January low of just above 0.68, so we are expecting an extended bottoming process.”

“AUD at fair value. The underlying long-term picture for AUD has improved, with the Australian terms of trade having turned higher in recent months. As such, the valuation mean reversion that drove the currency lower since 2011 has ended.”

“China remains the key risk. The key risks to the AUD outlook are from the external environment, namely the Chinese economy and commodity prices. The Aussie dollar is the G10 currency most exposed to China, which is the destination for nearly one-third of Australian merchandise exports. China and Hong Kong together are the largest positive contributors to the Australian trade balance, followed by Japan. Hence, any sharp weakening in Chinese demand would have a major negative impact on Australian growth.”