ANZ continue to think that the AUD is going to depreciate in line with a stronger USD over the forecast horizon, the scale of the depreciation in our forecasts looks too large.
In brief:
- Significant AUD downside has started to look more like a tail risk than a central forecast. Commodity prices have risen more than anticipated, liquidity remains ample and volatility is expected to remain in check.·
- Valuation has also corrected. There is now a negative risk premium priced into the AUD which suggests that even if a tail risk does manifest, the current level of the AUD provides some protection relative to other cyclical currencies.·
- We now expect the AUD to be range bound, though a slow acting RBA, policy risks from the US and some anticipated consolidation in commodity prices mean that our forecasts are still biased lower.
Putting this altogether, we continue to think that the current risk premium will be retained in the AUD, that fundamentals will be more stable, and that there is somefurther downside risk via a USD overshoot on policy.
- As such we raise our forecasts, expecting the AUD toremain in its recent range for longer, and shift our bias.
- We recommend using weakness to buy rallies, rather than aggressively selling into strength.
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Latest 'FX Insight' piece from Daniel Been at ANZ Research
