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21 Jan 2016
AUD: Still quite overvalued – NAB/BNZ
FXStreet (Delhi) – Research Team at NAB/BNZ, suggests that the negative terms of trade pressures on the AUD intensified in December - widening the 'valuation gap' and the 4% AUD TWI fall this far in 2016 (and ~5% vs. USD) is not enough to close the gap and they continue not to expect a sustained fall below 0.65.
Key Quotes
“Fast forward to the first two weeks of January and the AUD has fallen by about 5% in trade-weighted terms and by almost 6% against the dollar versus end-2015 levels. All well and good. The ‘problem’ is that the sharp fall in commodity prices in December (the RBA’s A$ commodity Price index fell by some 6%) and which has been extended in January, means that the fall in the currency year-to-date has done precious little to close this valuation gap, with the implied equilibrium AUD rate having fallen further.
Partly for this reason, we expect further downward pressure on the AUD in coming weeks/months, though not to the extent that it seriously challenges our long-held view that the AUD/USD rate will for the most part remain within a 65-75 cents range during 2016.
We also suggest that AUD will struggle to recapture a 70 cents handle later in the year, even if we are right that current RBA easing expectations flip to pricing in a tightening cycle commencing one side or other of year-end.
Commodity currency sentiment to remain depressed
Though hard commodities haven’t been under as much pressure as oil prices in recent weeks, we see no reversal of fortunes for oil anytime soon or let up in negative sentiment toward commodity-linked currencies in general.”
Key Quotes
“Fast forward to the first two weeks of January and the AUD has fallen by about 5% in trade-weighted terms and by almost 6% against the dollar versus end-2015 levels. All well and good. The ‘problem’ is that the sharp fall in commodity prices in December (the RBA’s A$ commodity Price index fell by some 6%) and which has been extended in January, means that the fall in the currency year-to-date has done precious little to close this valuation gap, with the implied equilibrium AUD rate having fallen further.
Partly for this reason, we expect further downward pressure on the AUD in coming weeks/months, though not to the extent that it seriously challenges our long-held view that the AUD/USD rate will for the most part remain within a 65-75 cents range during 2016.
We also suggest that AUD will struggle to recapture a 70 cents handle later in the year, even if we are right that current RBA easing expectations flip to pricing in a tightening cycle commencing one side or other of year-end.
Commodity currency sentiment to remain depressed
Though hard commodities haven’t been under as much pressure as oil prices in recent weeks, we see no reversal of fortunes for oil anytime soon or let up in negative sentiment toward commodity-linked currencies in general.”