19 Jul 2013
Flash: AUD/USD view for the next 5 years - SocGen
FXstreet.com (Barcelona) - The presumption by Sebastien Galy, FX Strategist at Societe Generale, is that the AUD/USD will tend to trade around present levels with a mild downward path over a 5 year horizon.
Key quote
"AUD remains clearly overvalued along a wide array of long-term metrics, giving it a downward bias. More importantly in the
nearer term, we see Australia’s terms of trade declining over time as commodity prices are more likely to ease than to rise (capacity, and our below-consensus China view). In addition, the rate differential between US and Australia is likely to shrink."
Galy also presents a case study on the potential directional bias in the AUD/USD depending on scenarios for the Chinese and US economies.
Australia Scenario
15% - In a scenario of a rapid recovery of China back to its old trend growth, AUD would rally rapidly higher, before collapsing as the price of this rapid Chinese recovery would be another crisis down the road.
60% - Core SG scenario of a move to a lower Chinese trend growth as that economy rebalances towards internal consumption.
25% - In a Chinese hard landing, AUD would collapse much lower and its subsequent recovery would take many years.
USA Scenario
50% - Should the US economy return to its old higher potential growth, the cyclical recovery of the USD would be strong but the AUD would eventually outperform. The SG scenario is closer to this one with elements of the weaker scenario below.
25% - The US economy continues its moderate growth scenario.
25% - Should the US economy stay in an anaemic form, the global picture would likely be difficult suggesting wild swings for the AUD/USD, many of which would be to the downside.
Key quote
"AUD remains clearly overvalued along a wide array of long-term metrics, giving it a downward bias. More importantly in the
nearer term, we see Australia’s terms of trade declining over time as commodity prices are more likely to ease than to rise (capacity, and our below-consensus China view). In addition, the rate differential between US and Australia is likely to shrink."
Galy also presents a case study on the potential directional bias in the AUD/USD depending on scenarios for the Chinese and US economies.
Australia Scenario
15% - In a scenario of a rapid recovery of China back to its old trend growth, AUD would rally rapidly higher, before collapsing as the price of this rapid Chinese recovery would be another crisis down the road.
60% - Core SG scenario of a move to a lower Chinese trend growth as that economy rebalances towards internal consumption.
25% - In a Chinese hard landing, AUD would collapse much lower and its subsequent recovery would take many years.
USA Scenario
50% - Should the US economy return to its old higher potential growth, the cyclical recovery of the USD would be strong but the AUD would eventually outperform. The SG scenario is closer to this one with elements of the weaker scenario below.
25% - The US economy continues its moderate growth scenario.
25% - Should the US economy stay in an anaemic form, the global picture would likely be difficult suggesting wild swings for the AUD/USD, many of which would be to the downside.