As I often say, markets are such wonderful things because they always offer second (third, fourth etc) chances. The Australian dollar is a perfect example today as markets move long opening an opportunity for clearer thinkers to do the opposite. Last week saw the CME Commitment of Traders Report record a jump in Aussie longs to 10k contracts, the highest since October 2014:
ANZ now sees the Aussie as the most over-valued it’s been in three years:
When the USD is strong, other currencies should be weak…When the indicator is rising in a strong USD environment (as it has been), it implies that the focus currencies have not been falling to offset the rise in the USD…Apart from the height of the reserve diversification thematic in 2012, the AUD is essentially as overvalued as it has ever been…While it is difficult to see the immediate catalyst for an imminent decline in either the AUD or NZD, and it is certainly true that the multi-year declines in AUD and NZD appear to be quite mature, these sorts of metrics suggest there is still further downside from current levels in trade weighted terms before the current deprecation cycle completes.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific's leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
