NAB: Australian dollar to 80 cents

These kinds of forecasts hang on continued “risk on” flows but they are no longer incredible:

NAB has raised its forecasts for all G10 currencies including the Australian dollar.

Head of FX strategy Ray Attril says the move “reflects our increased conviction that the recent weakening in the USD is ’for real’ and has a fair way to play out over the coming couple of years at least”.

He now sees the Aussie at US74c in December 2020 versus US72c previously, US78c in December 2021 versus US75c previously, and US80c at June 2022 versus US75c before.

Mr Attrill says short-term “fair value” for the Aussie has been boosted by a combination of improved risk sentiment and commodity price gains, while NAB’s longer-term AUD valuation model, driven more by real interest rate and commodity price variables, also sees the rise since March as fully justified.

Westpac adds more bullishness:

USD breakdown likely to continue amid the Fed’s stimulus commitment, virus-thwarted rebound prospects and an ongoing positive reappraisal of EUR’s long-term prospects following last week’s EU fiscal burden sharing accord. Short USD positioning approaching the bottom percentile of the last 16 years but that is likely to endure while yield spreads remain unappealing.\

The upside limiting factor is that the developing unwind in house prices and cratering consumption. But, given the Lunatic RBA has already put the cue in the rack for more easing, that also limits the impact on the AUD of crushed domestic demand.

The MB Fund has progressively shifted its forex hedge to EUR.