AUD To Soar?
13 September 2011
here was a commentary which quoted an Australian economist, Shane Olivier, saying that AUD could soar to 1.20-1.30 against USD.
He was right that such levels were totally unimaginable just several years ago.
However, unless the US side goes totally berserk, steering their economy to oblivion, I can’t quite share his view.
We should also note that even at the present level of AUD being just 3-5% above parity, a significant portion of the Australian economy is experiencing a hard time.
Besides, the AUD as it stands is already trading at an extreme level when measured against its PPP value, around 30-40% overvalued. In the long-run, we can expect things to mean revert, rather than to continue overshooting.
In addition, given the huge problems facing the Eurozone as well as the determination of the SNB in preventing their CHF from appreciating any further, there should be scope for USD to strengthen.
So for AUD to continue overshooting, it’s not just that it could be detrimental to the economy down under, in my view, we might in fact have seen the peak, so in contrary to the overly bullish commentary.