The Australian dollar enjoyed a strong rally on Wednesday, surging back above 74 US cents as US bond yields fell.
It’s now rallied over 4% since late December.
Well, according to Daniel Been, head of FX research at ANZ, there’s likely to be further gains to come.
In a note to clients this week he offered four reasons why the AUD/USD will move back to the previous range high of 78 cents in the year ahead: the outlook for global growth is improving, market liquidity is rising, volatility is reduced and there are signs that the Aussie is undervalued.
“The recent pace of change in market dynamics has left the AUD behind,” says Been, suggesting that many of these factors could persist in early 2017, providing renewed support for the Aussie.
“When combined, we think the current environment of a negative risk premium, conservative valuation, solid global growth, lower volatility and rising liquidity should be sufficient to drive the AUD back towards its range highs.”
The daily chart below shows the AUD/USD’s path over the past 12 months, including its attempts, and failures, to make a sustained break above .7800.
Been recommends recommend buying AUD/USD at 0.7380, with a target of 0.7800. He says he’ll reassess the trade should the pair fall back to .7150.
“While we also remain concerned that when the liquidity cycle does turn, the AUD will come under severe pressure. However, these concerns are unlikely to play out in the near term,” he says.
The view presented by Been is somewhat contrarian to the prevailing market theme, with most currency forecasters predicting that the Aussie will continue to fall against the US dollar in the year ahead.
In a recent poll conducted by Thomson Reuters, the median forecast is for the AUD/USD to end 2017 at 72 cents, with individual forecasts ranging from a low of 60 cents to as high as 83 cents.