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Analysts divided over Aussie dollar
Published on 21.02.2017 23:00

The Australian dollar is holding steady today with analysts deeply divided over the direction of the currency as the year unfolds.

 

At 8.31pm (GMT) the Aussie dollar was trading at US76.81c virtually unchanged from yesterday’s trading.

 

The currency has been one of the best performers from the majors this year, rising over 6 percent but depending on who you believe, the Aussie has further to go, or is about to come crashing back to earth.

 

Aurelia Augulyte, a foreign exchange analyst at Nordea Markets said in a note to clients that the Australian economy was headed for big trouble as the Chinese economy grinds to a halt which will curb demand for Australia’s major exports such as iron ore and coal,

 

“While the world is cheering and the pro-risk environment persists, I retain my sobering view that we will face a reality check within a few months”she said in a research note to clients

 

“One big part of it is China, which not only will precede a global reflation fade from March onwards, but also lead a slowdown in global demand.,” she added.

 

On the other end of the spectrum is Deutsche Bank's chief economist Adam Boyton who claims there are plenty of reasons for the local currency to move higher and thinks the Australian dollar is headed to US80c

 

“In essence we are comparing export-driven movements in the current account deficit to interest rate differentials; arguing that an export-driven narrower current account, for any given interest rate differential, should see a higher Australian dollar. Our construction is not only highly correlated with the Australian dollar, but in fact tends to lead movements in the currency.’’

 Mr Boyton said.

 

“It also prompts the question of whether or not an export driven narrowing in the current account can tell us something about the likely direction of the Australian dollar? Interestingly, it appears that it can.” He added.

The material published in on this page is produced by the FIBO group companies, and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC; furthermore it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

Andrew Masters

Analyst

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