National Australia Bank with projections for the Australian dollar (NZD also included in pic)

National Australia Bank with projections for the Australian dollar (NZD also included in pic)

On the AUD, citing:

  • Latest strength in commodity prices and risk sentiment have together pulled our short term fair value estimate up from the 0.68-0.69 region to 0.69-0.70
  • AUD/USD remains very fairly valued at current levels, both with respect to our short term fair value model (shown above) and longer term valuation metrics.
  • suggests we need to see some further improvement in risk sentiment and/or commodity prices to readily justify a (sustainable) top-side break of the prevailing 0.6750-0 0.7050 effective range
  • An upside range break remains our central scenario for H2 2020 (year-end forecast 0.72) consistent with an ongoing, infrastructure-heavy China economic recovery and related commodity price strength, and a softer USD.

key risk to this view

  • anything that prompts a significant correction in risk sentiment, where internationally we would list the approaching US election as high on the list.
  • Locally, poor Australia-China international relations are a risk only in so far as Australian exports to China are impacted on a much bigger scale than to date.