The Australian dollar has offered broad stability in recent days—a welcome change from last week’s sharp decline. The Aussie will likely trade higher over the coming months, Goldman Sachs has said, although anything goes for AUD/GBP on Wednesday as a vote of no confidence in the British Prime Minister takes place.
The Australian dollar continues to hold its ground against the US dollar at or near $0.72.
Australian dollar bulls watched unhappily last week as the currency fell quickly away from $0.74 following the release of disappointing economic growth numbers and as traders chose safer assets amid a sell-off in global equity markets.
Against the New Zealand dollar—by far the best performing major currency since November 1st—the Aussie continues to rally away from Monday’s long-term lows; it traded during Wednesday’s Asian session as high as $N1.0528.
Against the British pound, like everything else, the Australian dollar has done extremely well of late; although, at £0.574, it remains down slightly on Monday’s 11-month high of £0.581.
Readers be warned, there is potential for AUD/GBP to skyrocket on Wednesday evening should Conservative Party members declare no confidence in British Prime Minister Theresa May, or fall should she receive party members’ backing. It was announced on Wednesday morning that May must face a same-day vote of no confidence—scheduled for 18:00-20:00 GMT—after 48 members of her party submitted no-confidence letters to the head of the 1922 committee.
Speaking on Tuesday on the Australian dollar’s trade-weighted valuation was a researcher at Singapore’s third largest bank, UOB, who said that the currency’s recent decline had “run ahead of itself” and that higher prices should be expected over the coming days.
Over the longer term, too, Australia’s currency appears to be ripe for appreciation.
In the view of Goldman Sachs, recent dovish comments from RBA Deputy Governor Guy Debelle “should be taken in the context of a speech dedicated to the policy response to the 2008 financial crisis rather than a signal on future policy direction,” and furthermore, much of the weakness seen in recent economic data “should prove temporary.”
“With a partial cut [to Australian interest rates] now priced into the curve . . . the risk-reward is favorable for AUD higher on a stabilization of both China data and the Chinese yuan,” GS argues.
GS expects to see AUD/USD at $0.75 in 3 months’ time.