80 NOT OUT: HSBC says the Aussie dollar rally has further to run yet

Australia’s batsman David Warner celebrates scoring a century (100 runs) against Pakistan during the first day of the third cricket Test match at the SCG in Sydney on January 3, 2017. / AFP / WILLIAM WEST / IMAGE RESTRICTED TO EDITORIAL USE – STRICTLY NO COMMERCIAL USE (Photo credit should read WILLIAM WEST/AFP/Getty Images)

The Australian dollar has been on fire in the past month, surging back above the 80 cent level on Wednesday for the first time in four months.

From the low of .7498 struck on December 8, the AUD/USD has rallied by 6.5%.

Quite a gain, especially over such a short period of time.

Here, look.

AUD/USD Daily Chart

The question many traders are now asking themselves is what will happen next? Is the recent price action a sign of things to come, or is the rally running on fumes, destined to be reversed in the period ahead?

While Deutsche Bank thinks it’s an opportune time to sell the Aussie at these levels, HSBC does not, retaining the view that the AUD/USD will finish the year at 84 cents.

Ladies and gentlemen, we have ourselves a market.

“Our forecast for AUD/USD to rise to 0.84 by the third quarter is centred on our belief that monetary policy normalisation is not priced in to FX,” says Tom Nash and David Bloom, Strategists at HSBC.

“This bullish view should get a helping hand from the balance of payments in light of growing optimism on global growth, which is improving the demand back-drop for Australia‚Äôs key commodities and providing a boost to the terms of trade.”

Nash and Bloom say the Aussie has lagged the upward momentum in Australia’s terms of trade since 2016, leaving “risks asymmetrically pointing to the upside for the currency”.

“This is another reason to buy the AUD in 2018,” they say.

Adding to the Aussie’s appeal, Nash and Bloom say that global growth is more supportive of higher commodity prices than in the recent past with history telling them “that some of the windfall will find its way through to the economy, accelerating the need for monetary policy normalisation”.

The AUD/USD trades at .7977.

If Nash and Bloom are correct in their call, it would leave the AUD/USD trading at the highest level since late 2014.

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