17 Jun 2014
Is the AUD overvalued? - BTMU
FXStreet (Barcelona) - Lee Hardman, FX Analyst at the Bank of Tokyo Mitsubishi UFJ, noted the AUD is heading into overvalued territory.
Key Quotes
"The Australian dollar has underperformed in the Asian trading session with the AUD/USD falling back after struggling to break above the 0.9400-level in the near-term. The Australian dollar has held up well so far during 2014 despite the ongoing sharp deterioration in Australia’s terms of trade which is serving to heighten downside risks ahead."
"The price of iron ore has now fallen by around a third so far during 2014 having lost around half its value since the peak from early 2011. The release of the latest RBA minutes overnight reiterated that the “exchange rate remained high by historical standards, particularly given the further decline in commodity prices over the last month”."
"However, the minutes highlighted again that there has been no material change in the RBA’s policy assessment with the RBA still judging “that the current stance of policy was likely to be appropriate for some time yet”. The RBA also noted that it remains difficult to assess how much the positive impact from low interest rates will help to offset a drop in mining investment and tighter fiscal policy."
"We expect the RBA to maintain its current monetary policy stance well into next year, although acknowledge that the risk of a further easing have increased at the margin. The relatively high yields on offer in Australia combined with the current low volatility environment is helping to boost carry demand for the Australian dollar in the near-term which has resulted in it becoming increasingly overvalued."
Key Quotes
"The Australian dollar has underperformed in the Asian trading session with the AUD/USD falling back after struggling to break above the 0.9400-level in the near-term. The Australian dollar has held up well so far during 2014 despite the ongoing sharp deterioration in Australia’s terms of trade which is serving to heighten downside risks ahead."
"The price of iron ore has now fallen by around a third so far during 2014 having lost around half its value since the peak from early 2011. The release of the latest RBA minutes overnight reiterated that the “exchange rate remained high by historical standards, particularly given the further decline in commodity prices over the last month”."
"However, the minutes highlighted again that there has been no material change in the RBA’s policy assessment with the RBA still judging “that the current stance of policy was likely to be appropriate for some time yet”. The RBA also noted that it remains difficult to assess how much the positive impact from low interest rates will help to offset a drop in mining investment and tighter fiscal policy."
"We expect the RBA to maintain its current monetary policy stance well into next year, although acknowledge that the risk of a further easing have increased at the margin. The relatively high yields on offer in Australia combined with the current low volatility environment is helping to boost carry demand for the Australian dollar in the near-term which has resulted in it becoming increasingly overvalued."