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3 Dec 2014
AUD not just a USD thing – BNZ
FXStreet (Barcelona) - Research Analysts at BNZ forecast 0.80 in 2015 and high .70 levels in 2016 for the AUD/USD pair, while noting that USD strength will not be the sole catalyst for the pair as terms of trade, volume and gold prices will affect the AUD equally.
Key Quotes
“Our forecasts for AUD/USD to drop to around 80 cents in 2015 and the high 70’s come 2016 are not predicated simply on US dollar strength. Nevertheless, with our bearish outlooks for EUR and JPY outlined above keeping the AUD crosses supported, AUD/USD is likely to have to do most of the heavy lifting when it comes to securing the scale of decline in the trade-weighted AUD commensurate with the (ongoing) decline in Australia’s Terms of Trade.”
“The latter is about 24% off its (2011) peak as of Q3 2014, yet the trade-weighted AUD is only 14% back from its (2013) high. Between 2001 and 2011, the Terms of Trade doubled and the AUD TWI appreciated by some 70%. Moreover, we expect another 4-5% decline in the Terms of Trade in 2015/16.”
“One key determinant of whether the AUD under or outperforms on key crosses will be the volatility backdrop. If AUD FX volatility pushes back much above 10% in 2015 – and sustains the increase – we would expect AUD to be an underperforming currency as its carry is rendered largely meaningless”
“The gold price will also be important, given its ongoing high correlation with the AUD. If the Fed is able to commence interest rate normalisation in 2015 while inflation remains quiescent, we struggle to believe gold will not go much lower at some point in the year given its role as the ultimate inflation hedge in a QE/currency-debasement world.”
Key Quotes
“Our forecasts for AUD/USD to drop to around 80 cents in 2015 and the high 70’s come 2016 are not predicated simply on US dollar strength. Nevertheless, with our bearish outlooks for EUR and JPY outlined above keeping the AUD crosses supported, AUD/USD is likely to have to do most of the heavy lifting when it comes to securing the scale of decline in the trade-weighted AUD commensurate with the (ongoing) decline in Australia’s Terms of Trade.”
“The latter is about 24% off its (2011) peak as of Q3 2014, yet the trade-weighted AUD is only 14% back from its (2013) high. Between 2001 and 2011, the Terms of Trade doubled and the AUD TWI appreciated by some 70%. Moreover, we expect another 4-5% decline in the Terms of Trade in 2015/16.”
“One key determinant of whether the AUD under or outperforms on key crosses will be the volatility backdrop. If AUD FX volatility pushes back much above 10% in 2015 – and sustains the increase – we would expect AUD to be an underperforming currency as its carry is rendered largely meaningless”
“The gold price will also be important, given its ongoing high correlation with the AUD. If the Fed is able to commence interest rate normalisation in 2015 while inflation remains quiescent, we struggle to believe gold will not go much lower at some point in the year given its role as the ultimate inflation hedge in a QE/currency-debasement world.”