CHART OF THE DAY: The Aussie Dollar Has Plenty Of Room To Rise

The Aussie rallied above 94 cents yesterday afternoon as a result of the RBA’s more upbeat economic tone that pervaded Governor Stevens’ statement following this months’ board meeting.

It was good news for importers, Australians travelling overseas and anyone buying on Amazon or other overseas internet stores.

But exporters, Queensland tourism operators and the RBA itself will not be happy with the move higher in the Aussie.

According to the NAB’s FX Strategy Team though, there could be further gains to come.

In a note to clients Emma Lawson, NAB’s Senior Currency Strategist in Sydney, noted that their innovative AUDUSD Fair value model – built with the help of the RBNZ and which takes into account the Fed’s quantitative easing – saw Fair Value leap to 0.9735 from 0.9378 after the Fed decided not to taper last month.

The observable Fair Value model which takes into account market rates on gold, industrial metals, swap spreads and risk appetite sits at just 93 cents.

But two things are worth noting. In the above chart, the Aussie is only mid-range of the one standard deviation fair value range, so it has more room to rally.

And the Fed’s unconventional monetary policy has been a big player in the US dollar’s weakness and overall moves in global Forex markets since 2009, so the Krippner Model (which they build with the RBNZ) might just be closer to the truth.

It’s worth noting that the NAB thinks valuation will drift lower across October.

The RBA and the Australian economy will be hoping they are right.

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