The US dollar is one of the primary drivers of the Aussie dollar’s power. It is an important input into any credible fair value model for the Aussie both because it is, ipso facto, the other side of the AUD/USD exchange rate and because of the feedback loop of the impact on commodity prices in which a stronger US dollar usually translates to lower commodity prices.
This chart below that the Goldman Sachs US macro research team released last night is bound to make RBA governor Glenn Stevens smile from ear to ear.
Goldman has undertaken an analysis of the US dollar over the past 30 years during times of strength and the impact on the US economy. They concluded that the past (specifically the period of appreciation in 1996) is a good guide to 2015 and they expect the US dollar to appreciate at least another 10% from current levels.
This would crush the Aussie on the global currency markets.
The relationship might not be linear but it certainly implied governor Stevens’ preferred level of 75 US cents is on the cards.
Here’s the chart.
75 cents here we come.