Fundamental outlook for AUD

23 November,, London – Within the past couple of weeks, AUDUSD has traded in a range from 0.7017 to 0.7250. However, surprise to the market participants has been that the Aussie hasn’t cracked through the 70 cents barrier.

Especially in an environment where: 1) Growing confidence in December Fed “lift-off” has generally been USD-supportive; 2) Main Australian commodity prices have come under fresh devaluing pressure, including iron ore; 3) Rising FX volatility, VIX jumped from below 15 to above 20 in the aftermath of the recent Paris terrorist attacks.

Fundamental outlook for AUD

Outlook for AUD

“Our main observation here is that since the speculative market is already very short AUD judging from IMM positioning data (see Chart 1) a lot of bad news for the currency already looks to be in the price,” National Australia Bank notes. The short term valuation models of National Australia Bank suggest and currently indicate fair value in the 0.77 – 0.79 area (see Chart 2).

Fundamental outlook for AUD

“Still forecasting 0.70 for year-end. We’ve held a year-end forecast for AUD at 0.70 since mid-August (when the AUDUSD outlook was lowered from 0.72) and don’t feel compelled to change it at present,” National Australia Bank projects.

Also consider reading: Don’t bet on AUD rally – BNP Paribas

Global risks

The downside risks rise from either a still stronger USD out of the December FOMC meeting, or the aforementioned volatility spike. The upside risks, however, appear from falling volatility levels, rather than rising, for the upcoming Fed, and also ECB, meeting outcomes and a potential USD sell-off following the FOMC, if the Fed will fail to materialize the market expectations or due to already priced rate hike.

“Any further reduction in RBA easing expectations would also support higher AUD level, though with only some 15bps of easing now over the coming year, upside for the currency on this factor alone is very limited,” National Australia Bank added.

Think we missed something? Let us know in the comments section below.

    Share Your Opinion, Write a Comment