NAB: Australian dollar spike temporary

Via NABFX:

Until we see that ingrained US dollar bearishness has run its course, at least for now, then setbacks for AUD/USD are likely to be shallow and a move to above 80 cents hard to argue against with any conviction.

….We’d also note that while AUD/USD is now looking rich to our short term fair value (STFV) model estimate (0.7910 vs. 0.7690 STFV) this is inside the model’s ‘ fair value range.  Typically, reliable buy/sell signals only emerge when AUD/USD is about 4 cents away from STFV.,” NAB adds.

“We maintain our 0.70 year-end /early 2018 forecasts for AUD/USD while acknowledging that the level from which we still expect a 5-6 cent fall into year-end is currently several cents higher than when we made the forecast.

Quite right. Here’s how I capture those two forces:

Right now the Aussie is under the influence of rising local forces (Chinese and commodity bullishness) and falling USD pressures (repricing Fed hikes, policy convergence with Europe). I still it rising into the low 80s.

However, I also see the AUD specific forces coming off through Q4 and and USD specific forces a little later as the oil dip passes, freeing up the Fed.

Plus, in my view, the Aussie will keep falling next year as China returns to reform.

Thus now remains a great time to get money into offshore assets.

————————————————————————————————

Disclosure: I’m the strategist for the Macrobusiness Fund which is currently overweight international stocks. We also run an international equities fund. Both of these will benefit from a falling Australian dollar so I am definitely talking my own book.

Register your interest in the fund and we’ll be touch.

Comments

  1. Chinese reforms, Bill Shorten stopping negative gearing, Richmond winning the flag.
    An absolute certainty.

  2. Years of AUD decline, followed by a flat spell, followed by a few weeks of rises and half the country are wetting themselves yelling GOLD GOLD GOLD AUSSIE GOLD.

    Meanwhile, the mining boom continues to correct, while the housing bubble defies gravity for a bit longer. Definitely a good time to buy offshore assets.

    • Very true and shows how it’s easy to get suckered into recent price action and think it will continue forever.

    • I think gbp has some potential. It’s very unloved at the moment whereas the aud is flavour of the month. Oil br some good gains from here is the U.K. can pull itself together.