FYI | Apr 13 2007
By Rudi Filapek-Vandyck
Among the experts who have been taken by surprise by the sudden surge of the Aussie dollar over the past month is Deutsche Bank.
The broker’s currency expert John Horner reports it has been the speed with which the Aussie managed to sail through barriers and other impediments to near US$0.83 that has surprised him the most.
Horner thinks better than expected economic growth prospects outside the US are responsible for all this, though he doesn’t want to fully dismiss some of the factors pointed out by other experts recently such as resurgent commodity prices and an ongoing tightening bias at the RBA (one could argue these factors are dependent on global economic growth as well).
The Deutsche Bank specialist would feel more comfortable in going long on the currency in case of a dip towards, or even below, US$0.82 but given recent performance he now doubts whether such an opportunity will reveal itself in the foreseeable future.
Deutsche Bank does not believe the RBA will hike at its next meeting, but Horner nevertheless believes the future holds strength and more strength for the currency. His latest advice is for investors to target a move to US$0.8475 for the currency.
Economists at Commonwealth Bank did some homework on the currency as well and their view, as far as the direction is concerned, is similar to Deutsche Bank’s. CommBank believes Fed speakers will take every opportunity from the coming week onwards to reinforce the message to the markets the chance of another Fed rate rise by mid year should not be dismissed if the US inflation trend fails to moderate.
It won’t stop the Aussie from rising further though.
According to CommBank an Aussie dollar above US$0.80 remains a rather unusual occurrence. The economists have gone back through history and calculated that since the December 1983 float the currency has spent only 5% of that period above US$0.80.
That won’t stop the AUD from rising further either, Commbank believes.
The economists anticipate the Aussie currency will test the US$0.8550 level in coming weeks as the positives – interest rate differentials, commodity prices and a weak USD – will drive the currency higher.
As the AUD is also at nine year highs against the JPY, the AUD trade weighted index of 67.2 is at its highest level since early 1989, Commbank notes, adding this should bode well for the inflation figures over coming quarters.