Australian Dollar a Sell in 2024, Says Danske Bank in Consensus-defying Call

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The consensus expects the Australian Dollar to rally in 2024, but analysts at one of Scandinavia's biggest banks and capital markets firms are rowing against the flow and are sellers in 2024.

The Aussie has strengthened into year-end, but Danske Bank say they are betting on AUD/USD weakness, and projections show this weakness will correspond with recoveries in GBP/AUD and EUR/AUD over the first half of next year.

"We remain short AUD/USD spot as part of our FX Top Trades 2024," says Stefan Mellin, Chief Analyst for FX Strategy at Danske Bank.

But the trade has been questioned as the Australian Dollar has been one of the better performing of the world's major currencies as the latter parts of 2023 play out, helped by the near-euphoric investor relief at signs the Federal Reserve will soon start cutting interest rates.

Analysts at Danske also note that iron prices have risen while Australia's domestic economy remains robust.

"The combination of dovish signals from the Fed's December meeting and stronger-than-expected Australian November labour market data provided the cross a lift," says Mellin. "Higher iron ore prices have provided Australian terms-of-trade an unexpected lift."

While this appreciation in the Aussie Dollar has challenged one of Danske Bank's core views for 2024, the strategy team won't be deterred.

"Weak growth momentum in Australia, in the key export market China and also globally is likely to continue weighing on commodity prices going forward," reads Danske Bank's year-ahead FX publication.

Analysts think relative interest rate differentials, relative terms-of-trade and U.S. economic outperformance will all be factors pushing AUD/USD lower in 2024.

Danske Bank's AUD/USD exchange rate forecasts see 0.64 in three months, 0.63 in six months and 0.62 in 12 months. Spot is currently quoted at 0.6730.

Danske's Pound to Australian Dollar exchange rate forecasts show a recovery from current levels at 1.8850 to 1.95 in three months, 1.91 in six months and 1.90 in 12 months.

For the Euro to Australian Dollar exchange rate, a move from current spot at 1.6250 to 1.72 in three months is expected, ahead of 1.84 in six months and 1.84 in 12 months.