Aussie dollar undervalued

The Australian at current levels is at its cheapest level in more than a decade against its US and according to one analyst may be shaping up for a good buy.

Joseph Capurso, a Senior Currency Strategist from the Commonwealth Bank in Australia claims that, the Australian dollar is now undervalued against the US dollar greenback based on the bank’s fair value model.

The model’s inputs include commodity prices priced in US dollars, the three-month interest rate spread between Australia and the US, and Australia’s current account deficit as a per cent of Australian nominal GDP

“Using this equation, we find the Australian dollar is currently undervalued by around 11 per cent. It has not been undervalued by this much since the height of the global financial crisis in 2008/09.” Mr Carpurso said

He also noted that there were a few scenarios that could trigger a jump in the Aussie dollar such as the movements in interest rates from the US Federal Reserve with the market in doubt just how much further they will raise rates.

“A potential near-term trigger for a stronger AUD/USD is if the [US central bank were to] indicate a pause in its rate hiking cycle at its December 19 meeting, generating a softening of the US dollar,” he says.

The Australian at current levels is at its cheapest level in more than a decade against its US and according to one analyst may be shaping up for a good buy.

Joseph Capurso, a Senior Currency Strategist from the Commonwealth Bank in Australia claims that, the Australian dollar is now undervalued against the US dollar greenback based on the bank’s fair value model.

The model’s inputs include commodity prices priced in US dollars, the three-month interest rate spread between Australia and the US, and Australia’s current account deficit as a per cent of Australian nominal GDP

“Using this equation, we find the Australian dollar is currently undervalued by around 11 per cent. It has not been undervalued by this much since the height of the global financial crisis in 2008/09.” Mr Carpurso said

He also noted that there were a few scenarios that could trigger a jump in the Aussie dollar such as the movements in interest rates from the US Federal Reserve with the market in doubt just how much further they will raise rates.

“A potential near-term trigger for a stronger AUD/USD is if the [US central bank were to] indicate a pause in its rate hiking cycle at its December 19 meeting, generating a softening of the US dollar,” he says.


Analyst

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