3 factors that will propel the Australian dollar to 85c next year, according to the CBA

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The Australian dollar has been on a tear in 2017, jumping by 10% against the US dollar.

According to the Commonwealth Bank’s currency strategy team, led by Richard Grace, there’s going to be further significant gains to come, forecasting that the AUD/USD will hit 85 cents by the end of 2018.

“The USD has fallen even more rapidly than we anticipated,” Grace said in a note today.

“While we have consistently been below consensus on our USD view, the revisions made today build upon our 1 May and 13 July changes and our bearish USD view.

“We are again bringing forward our higher AUD forecast.”

Here’s the bank’s latest AUD/USD forecasts.

Source: Commonwealth Bank

Grace says there are three factors underpinning his bullish view: a convergence in central bank policy between the US and other major nations, a strengthening synchronised global economy is typically bullish for commodity currencies such as the Aussie dollar and the likelihood that Donald Trump will not be able to deliver meaningful US tax reform.

“We have generally been optimistic about AUD in 2017, and that remains the case with our new upgraded forecasts,” says Grace, adding that the main risks to his call would be if Trump managed to push through tax reforms, or if US inflationary pressures were to spike.

The AUD/USD currently trades at .7972.

AUD/USD Weekly Chart

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