Tuesday, February 5, 2008
AUD is highly overvalued compared to levels implied by long-run equilibrium and will have to see a significant correction
We will therefore consider going short AUD when we see one of these triggers.
. When this correction will take place, however, and how gradual it will be, is uncertain. While relative growth and interest rates remain favourable, three factors will weigh on AUD in 2008, as global growth slows, commodity prices peak, and global risk aversion remains high or rise. We will therefore consider going short AUD when we see one of these triggers. AUD could, however, see relief in the very short term, if Q4 inflation numbers released on 23 January turn out to be above the RBA forecast. This would most likely trigger an interest rate hike at the 5 February meeting, which is now only priced with a 40% probability by the market. We do in fact expect the RBA to hike the policy rate by 25bp at the February meeting, although it is a very close call.
Posted by chris @ 04:36 AM (1036 views)
4 thoughts on “AUD is highly overvalued compared to levels implied by long-run equilibrium and will have to see a significant correction”
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Landedgentry says:
It was a nice ride up on AUD/USD and AUD/JPY.
d'oh says:
And if you time your shorts right, it will be a nice ride down. Have been keeping my eye on the AUD for some time. Thing to watch for is China reducing its demand for commodities.
James says:
M’eh – what’s run the AUD up is the carry trade, and that’s going nowhere given the pressure is upwards on the RBA. Australia, being less exposed to current volatility and more reliant on commodity exports, could distinguish itself as maintaining relatively high interest rates throughout the crunch, just making the carry trade more attractive and keeping the AUD buoyant.
This all assumes China’s still building and buying… but if it’s not, the pain will be felt worldwide. I like AUD for the foreseeable.
geed says:
I have a chunk of Ausse dollars and have been tempted to transfer to Euro/Sterling, this has me worried whether i should take the plunge.