Currencies | May 07 2010
By Rudi Filapek-Vandyck
Australian dollar bulls can forget about the currency reaching parity against the US dollar for the time being. Until not that long ago FX specialists at National Australia Bank were among those bulls, but the analysts have quickly revised their stance in light of recent market developments.
The greatest driver of the AUD right now, report the analysts, is investor risk-aversion linked to fears that the Greek debt-crisis will spread to Spain and Italy. If this happens it could potentially harm the European banks in France and Germany which have large lending exposure to these troubled debt markets.
So far, report the analysts, we haven’t seen any sharp rise in bank funding costs due to the European sovereign-debt crisis but should this occur, fears of a second global financial crisis would no doubt escalate.
Enter signals of investor panic over the past 48 hours.
The overall impact on the Aussie dollar has been nothing but spectacular. It was only days ago when National Australia Bank reported its fair value estimate for the AUD fell only narrowly short of parity against the USD. Today, however, the same FX specialists report their short-term fair value estimate for AUD/USD has now fallen to 0.9070 with one-standard deviation bands of 0.8730 and 0.9400.
The analysts point out the brief fall in AUD/USD overnight to 0.8715 left the cross in “cheap” territory but this is no longer the case at 0.8850.
Their conclusion: “In the absence of a circuit breaker to the current bout of risk-aversion, AUD/USD will face stiff resistance at 0.9000 near-term.”
