Barclays joins MB’s 80 cents dollar call

I was the most bearish in the market. No longer, from the SMH blog:

In a note today, the two analysts look at the Reserve Bank’s fair value model for the exchange rate. They conclude that the terms of trade is the dominant influence on the currency, and that its is now close to fair value after being 10 to 12 per cent overvalued in late 2012 and early 2013.

They add that although the central bank appeared to be less concerned about the exchange rate in its statement yesterday, “we believe the exchange rate can fall further over the coming year, driven by external factors”. Here’s more:

• In particular, the recent tightening in China’s policy bias, in conjunction with slowing economic growth and the commitment by Chinese policymakers to rebalance the economy away from fixed investment towards private consumption, is a bearish development for the Australian dollar.
• At the same time, there should be additional pressure from a stronger USD this year, on the back of a faster-than-expected improvement in the US labour market and a normalisation of the Fed’s monetary policy.
• Consequently, the exchange rate seems likely to decline by more than the Reserve Bank expects, and we think it will reach US84¢ by the middle of this year and US80¢ by the end of this year.

A weaker exchange rate could also see the Reserve Bank hike the cash rate later this year, the analysts added.

Fat chance on the last point.