Australian Dollar Forecast: Full Steam Sideways

The Aus dollar could strengthen in the near-term against the pound sterling and US dollar according to recently published forecasts and tactical notes issued by researchers at ANZ Bank and Westpac.

Those hoping on higher transaction levels in GBP-AUD should note that the now well established uptrend in the exchange rate could be about to reach its 2015 maximum.

Fundamental forecasts we have seen from ANZ are factoring a maximum of 2.04 GBPAUD to be reached in September 2015 where the exchange rate will oscillate around until the end of the year.

However, the GBP will then likely push the AUD to 2.2 by September 2016 as Australian dollar weakness becomes a feature of 2016.

“GBP offers the best fundamentals next to the USD. Strong fundamentals in the UK will drive GBP outperformance,” says ANZ Researcher Daniel Been.

The calls come as the British pound to Australian dollar exchange rate (GBPAUD) continues to outperform and trades to 2.0445 on the spot inter-bank markets.

The Australian dollar to US dollar meanwhile trades to 0.7758.

Note that these are spot rates – your bank will subtract a discretionary spread. An independent FX provider could deliver up to 5% more FX by quoting you closer to the market, learn more.

Sideways Action

For the GBP-AUD a sideways movement with a mild bias in favour of sterling appears to be the preferred theme at ANZ for the remainder of 2015.

This trend is also expected for the Australian v US dollar rate – the AUD could prove stubborn to USD advances in coming months and this could see the AUD show strength against a host of other smaller currencies as direction is taken from the headline AUD-USD.

“We could see the AUD up to 0.79 and possibly 0.7950 level before we would describe the currency as extreme to fair value. That suggests we could be stuck with the current 0.7550 to 0.80 range for some time to come. We do expect the AUD to break sustainably lower, just not any time soon,” says Robert Rennie from Westpac in Sydney.

Rennie has argued for an eventual break lower later in the year but the A$ remains very much stuck in a broad 0.7550 to 0.80 range.

Indeed, over the last 5 months, the A$ has only settled outside of that range on 5 occasions. “I suggest that it could remain in that range for some time to come,” says Rennie.

However, the Westpac researcher does believe that should a break out of the current range occur it would likely be to the downside.

Interest rate differentials continue to suggest that the A$ should be lower. 2yr differentials between Australia and the US is close to lows back to 2006 and suggests that the A$ should be trading well below current levels.

ANZ strategists recommend that based on overvaluation fears and the nature of the sideways range that the AUD should be sold at the top end of its range:

“The challenge will be to remain alert, but not alarmed and as such trading will remain tactical. In a strategic sense we will look to re-sell the AUD at levels that are more obviously expensive. Currently, that level is above USD0.80 where we believe the AUD will become a significant focus of the RBA.”

ANZ’s Been joins Rennie in conceding that calling the forecast on AUD-USD has become more difficult noting “a challenging environment for forecasters.”

The US Fed’s signal that it is unlikely to raise rates before September means that the market will take its (northern hemisphere) summer break and the AUD could remain range bound, “just as it did before its precipitous fall last year,” notes Bean.

In summary – patience is required.