Via HSBC:
- USD rally to continue as the Fed tightens;
- Other central banks have delayed hiking creating asymmetric risk for the USD;
- Tumbling emerging markets are adding more upwards pressure the USD, and
- Neither USD valuations nor positioning is yet stretched.
I would add a slowing China, falling commodity prices (especially bulks which are weakest in the August-November period) and the trade war.
HSBC cut its Australian dollar forecast to 70 cents by year end from a previous 72 cents. It’s now matched the MB outlook.
A chart from Goldman makes the point that the USD rally has plenty of room yet to run:
We’ll need to see at least one of four things before the AUD bottoms:
- European growth must accelerate and the ECB tighten faster, dropping the USD;
- US growth will need to fail such that the Fed stops tightening, dropping the USD;
- China will need to stimulate enough to turn its incipient slowdown, boosting Australian prospects;
- Australian domestic demand will need to accelerate enough to trigger RBA tightening.
Not one of those preconditions has yet been met, let alone plural. HSBC is right.
David Llewellyn-Smith is chief strategist at the MB Fund which is long US equities that will benefit from a falling Australian dollar. Below is the performance of the MB Fund since inception:
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The information on this blog contains general information and does not take into account your personal objectives, financial situation or needs. Past performance is not an indication of future performance.
