Aussie Revival seen in record breaking shorts, RBA at Turning Point
(Bloomberg) – Traders have never been as negative on the Australian dollar as they are now. This is just one of the reasons that will help him recover, say strategists.
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Other positive elements should lead to a rebound, including expectations that the central bank cannot be more accommodating than it currently is and the fact that many Australian commodity exports are increasing, with the exception of the iron ore, according to Crédit Agricole SA. The Aussie will be bought once the lockdown releases of Covid-19 are confirmed, according to the Canadian Imperial Bank of Commerce.
“Our short-term fair value model indicates that the Australian-US dollar is nearly three standard deviations below its fair value based on relative Australia-US rates and commodity prices,” said David Forrester, FX strategist at Crédit Agricole in Hong Kong. “The next 100 to 200 pips for the Aussie are probably higher.”
The Aussie fell 1.6% in September, heading for a fourth month of losses as rising viral infections lead to widespread restrictions on movement. Short positions on the Aussie-USD currency pair climbed to 85,584 in the week to September 21, a record high in Commodity Futures Trading Commission data from 1992.
The Reserve Bank of Australia was vindicated in its view that the spread of the delta variant presented downside risks, but at the same time the central bank has likely reached “maximum pacifism,” said Forrester of Crédit Agricole.
“With Australia’s vaccination rate rapidly heading towards levels of 70% to 80% where the economy will start to open again, economic data from November will start to surprise on the upside,” a he declared.
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While the focus is on falling iron ore prices, there have been sharp increases in Australia’s other major commodity exports, including liquid natural gas, coal and metals. base, Forrester said.
Credit Agricole predicts the Aussie will hit 75 cents by the end of the year and hit 77 cents by mid-2022, according to data compiled by Bloomberg.
The Australian currency reduced some of its September losses on Thursday, rising 0.4% to 72.05 cents US, as iron ore rallied.
Others remain bearish.
Australia’s main risks are on the downside as local policymakers lag behind their US counterparts in removing stimulus measures, according to Nomura Australia Ltd.
“The RBA is more accommodating than the Fed, and Governor Lowe’s aggressively accommodating cash rate forecast in mid-September still resonates in our ears,” said Andrew Ticehurst, rate strategist at Nomura in Sydney. “Market nervousness over the unwinding of the World Central Bank’s accommodation measures could also push the aussie down relative to risk.”
Other reasons for selling the currency include the likelihood of macro-prudential tightening by the government which will mean less pressure for the RBA to reduce stimulus measures, he said.
CIBC agrees there are near-term risks to the Aussie, but sees the prospect of a rapid economic recovery that will boost the currency through 2022.
“We see very strong support in the 70-71 cent range and expect this to continue to be the lower end of the range over the next few months before a possible rally in 2022,” said Patrick Bennett, Head of Macro Strategy for Asia at CIBC Hong Kong. “Confirmed foreclosure exits and resumption of activity will support Australian buying.”
The currency will strengthen to 74 cents in June and hit 75 cents in September, he said.
(Updates to add Thursday’s movement in the ninth paragraph.)
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