Some great work from Westpac Head of Market Strategy Robert Rennie
He says:
- The A$ has risen by 4.3¢ (5.7%) over last 8 weeks
- over the same period the Westpac Markets fair value model has risen by just 1.3 ¢ (1.8%)
and asks:
- Why is the A$ so strong?
Rennie then explains the factors pushing the currency higher:
Commodity prices are strong
- Westpac Australian export weighted commodity index is at 1yr highs
Risk sentiment in global financial markets has also been positive
A factor weighing on the currency though:
- AU-US 2yr swap spread is at fresh lows back to December 2000
Concludes:
- Our fair value model framework thus suggests that as much as 70% of the recent rise in the A$ could have been driven by the recent slide in the US$. If history is a guide, that leaves the A$ looking 'expensive' at least on the basis of our fair value framework.