UBS has added themselves to a growing list of experts predicting a broad recovery in the Australian dollar. Against the US dollar, the bank is offering a consensus-busting Aussie forecast of $0.82 for 2019 year-end, indicating a 14 percent rise from current levels.
It was a mixed end to the week for the Australian dollar.
Like many other currencies, the Aussie was on the wrong end of a WWE-worthy beatdown by the Canadian dollar on Thursday and Friday, thanks to robust Canadian economic data and OPEC’s decision to maintain production levels.
Against the US dollar, a rally to a one-month high of $0.7315 in the aftermath of Wednesday’s Federal Reserve meeting quickly turned sour and the Aussie was back testing $0.72 towards the end of the week.
The Aussie did, however, end strongly against all of the European majors, especially against a fragile Swiss franc.
This week, predicting a big rally in the Australian dollar is Swiss banking giant UBS, which is forecasting appreciation versus the US dollar of nearly 14 percent by the end of next year, to $0.82. The bank’s opinion is similar to that held by Citibank, described on BER ten days ago.
Per the Business Insider, UBS believe that “factors which have thwarted any AUD appreciation in recent months appear to be dissipating.”
Global trade tensions, which threaten growth-sensitive currencies like the Australian dollar, will soon ease, UBS believes; and emerging market currencies, which are often played via the highly-liquid Australian dollar, will stabilize.
Furthermore, UBS offer a contrarian view on US monetary policy: the Fed will keep US rates unchanged at 2.25 percent in December, not hike as markets are widely expecting. Undoubtedly, that would boost the Australian dollar’s value relative to the US dollar.
A move to $0.82 would take the Aussie back to levels last seen in early 2015 and would likely give headaches to all nine members of the RBA’s decision-making board who, for much of 2018, have shared a consensus view that “a significant appreciation of the Australian dollar would tend to dampen future output growth and inflation.” A stronger currency would, of course, benefit Australians buying or sending money overseas, including importers.
The threat of a proxy war between the US and Iran in Iraq has pared back some of the recent gains of “risk-on” currencies.
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