(08 December 2020 – Australia) The Australian Dollar (AUD) has jumped to multiyear highs on the back of record iron ore prices defying the gloom of China trade restrictions on selected commodities and dovish Reserve Bank of Australia monetary policy.
The AUD leapt to US$0.745, retracing August 2018 trading levels, as the Dalian iron ore price surged to US$150 a tonne. Iron ore prices were underpinned by record Chinese November import trade data coupled with 1.07 billion tonnes of volume, easily exceeding the entirety of 2019 total imports. Australia's trade account is also bidding up the Aussie dollar.
East & Partners Global Business FX research shows 2,586 Australian importers and exporters forecast the AUD to remain at current trading levels through H1 2021, ending June 2021 at US$0.722. This marks an enormous shift from last round’s record bearish forecast of US$0.563 and significant variance by business size. Six month forecasts have swung in opposing direction by segment each round noting timing of last round’s interviews at the outset of the COVID-19 pandemic in Q1 2020. SMEs are significantly more bearish than middle market and institutional enterprises for next year, while H2 2020 forecasts saw larger enterprises preparing for a greater depreciation in the currency relative to small businesses.
“Sentiment is improving as we move to the year end. Vaccine stories have been a game changer. Australian bond yields appear to have moved into a higher range and we expect further gains for the Australian dollar over coming quarters. The currency could move into the high US70¢ range” said Nomura Securities Executive Director, Senior Economist & Rate Strategist, Andrew Ticehurst.
“The Australian dollar's status as a risk proxy is also lifting demand for the currency. It is a developed market currency trading in the Asian time zone and allows people to express a positive Asia view with a very liquid instrument. On the flip side, Nomura has a ‘very negative’ view on the US dollar. We think it's overvalued on our modelling” Mr Ticehurst added.
“Australia's AAA credit rating is likely to be shielded by the current account surplus. If that's maintained then it will lead to generally a more resilient Australian dollar, meaning our currency will hold up better in times of market stress” stated Credit Suisse Portfolio Manager, Jasmin Argyrou.
“Having a current account surplus means we are less reliant on foreign capital inflows. We're more reliant on our own savings. So it means it will be easier for us to maintain that AAA status” she added.