Pressure Builds for Range-bound Aussie Dollar
(19 May 2021 – Australia) The Australian dollar (AUD) has flat lined for most of H1 2021, defying record highs in iron ore prices and equities.
Currency strategists are bullish, making a case to the upside for the Aussie Dollar to advance to US$0.800 and beyond on the back of an optimistic global economic growth projection.
The Aussie Dollar appreciated strongly in Q4 2020 as the global growth outlook improved on the back of promising COVID-19 vaccine trials yet has remained firmly range-bound ever since, a desirable outcome for the Reserve Bank of Australia (RBA).
The AUD is currently trading at US$0.788, relatively unchanged from the start of the year after rising to US$0.800 at the end of February then falling back and bouncing around within a narrow two cent range through H1 2021.
East & Partners Currency Forecast research, based on direct interviews with 2,586 Australian importers and exporters in September 2020, revealed CFOs and corporate treasurers expect the AUD to weaken against the greenback to US$0.722 by the end of H1 2021. Forecasts were also captured for GBP, EUR, RMB and NZD. This clearly illustrates how quickly markets shifted out of the worst of the COVID-19 pandemic in the country alongside booming resources prices, especially iron ore, and a faster than expected recovery in trade volumes.
How are corporates hedging their short, medium and long term exposure given the longer the AUD remains range bound, the larger the “breakout” to the upside or downside will likely be?
“The longer the Australian dollar remains such a distance from where commodity prices are, the less likely it ever gets there. It certainly tempers my confidence in the scale of Aussie appreciation from here” stated Westpac Senior Currency Strategist, Sean Callow.
“Ultimately, commodity prices usually go up because of strong global growth and I think the Australian dollar is more tied to the strong global growth dynamic than the commodity price dynamic per se” commented ANZ Currency Strategist, Daniel Been.
“If commodity prices are just going up because of supply, then the Aussie dollar will not follow then as sharply because the market will look through it as a temporary boost. Whereas if they are going up because of strong demand then people see it as more sustained, and usually you see the Aussie dollar moving alongside commodity prices” Mr Been added.
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