AUD now expensive to ‘fair value’ measure - Westpac

Robert Rennie, Research Analyst at Westpac, explains that their ‘tried and tested’ fair value methodology suggests that about 30% of the 6.9% rally in the A$ in the last 10 weeks can be explained by traditional drivers e.g. interest rate differentials, commodity prices and measures risk sentiment and flow.

Key Quotes

“While it may be something of a ‘long bow’ to draw, this would imply something approaching 70% could have been driven by the US$ slump.”

“Now that is not to say that the A$ does not have positive attributes. It’s still higher yielding; commodities are strong and risk sentiment is upbeat. However, with CPI next week and RBA the week after, we would expect to see a slower pace of gains above 0.81.”