The Australian dollar isn’t exactly universally loathed, but most traders, investors, and pundits believe that it’s only a matter of time before the the Aussie slips below 70 cents and into the mid to low 60 cent region.
But David Sokulsky, UBS Wealth Management’s head of investment strategy, reckons there is a chance that the Aussie dollar defies the doomsayers and rallies into the 75-77 cent region again the US dollar, Fairfax reports this morning.
Sokulsky’s own base case is that the Aussie will fall, with a target of 71 cents by year’s end and 65 cents in 2016, but ongoing uncertainty about what central bankers in the US, Europe and Japan are planning to do could renew investors’ appetite for buying the battler.
That’s because the debate raging at the Fed could keep US rates on hold, while the economic malaise in Europe and Japan could see both the ECB and BoJ launch fresh rounds of quantitative easing.
“The key issue for investors in the current environment is that nobody knows what the major central banks will do over the coming months,” Sokulsky said. He also noted that “the uncertainty is heightened as none of the banks have a clear directional stance and quantitative easing remains a possibility for most of them”.
Indeed, the Sunday Times this week ran a story suggesting that ECB president Mario Draghi could announce more QE as early as this Thursday’s meeting.
In that scenario, Sokulsky says: “Australia will be attractive due its higher relative interest rates, and as a consequence the Australian dollar will likely rally.”
He added that this scenario was not priced into the market and if China somehow defies its own economic doomsayers the Aussie will rally.
Certainly the speculative community, short-term traders, hedge funds and the like, is still short (sold) Australian dollars. Even though these short positions are not as big as they have been, Sokulsky makes a good point – a delay in the Fed hike or more QE in Europe and Japan will catch traders on the hop.
That in itself is enough to drive a solid counter-trend rally. It could also potentially increase chances the RBA would cut.
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