Concerns that the Australian dollar is overvalued, AUD-USD fair value is a long way below current levels

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Category: Australian Dollar News

Written by Sam Coventry

International Money Transfers at our sister site

"We anticipate it will be difficult for AUD-USD to sustain a rally above parity given the weaker external fundamental backdrop" - Barclays.

This afternoon we see the pound Australian dollar exchange rate is 0.48 pct higher on yesterday at 1.5167. The Euro Australian dollar exchange rate is 0.02 pct in the red at 1.2036.

The Australian dollar to US dollar currency pair is 0.62 pct down at 1.0225.

But, the Australian dollar (Currency:AUD) could be overvalued warn a number of analysts.

In a note to clients released today Bank of America Merrill Lynch say:

"Since March we have maintained our view that 0.98 represents a fundamentally “fair” value for AUDUSD. We leave our forecast for the rest of the year unchanged at this level.

"This had already incorporated our more bearish-than-consensus outlook prior to May for the AUD and takes into account some modest upside risk from short positioning and global policy action in the second half.

"However, we anticipate it will be difficult for AUD-USD to sustain a rally above parity given the weaker external fundamental backdrop, particularly in China, and our broadly bullish USD view. We continue to expect a further modest decline to 0.94 by the end of 2013.

Barclays less certain on further euro / Australian dollar losses

This afternoon Barclays have advised that any further downside in the euro / Australian dollar exchange rate could be hard to come by:

"We are taking profit on our trade recommendation of being short EUR/AUD via options, initiated on 29 June 2012 at a cost of 41bp and a net gain of 90bp.

"We remain constructive on the AUD and bearish the euro medium-term but think that the risk-reward of being short EUR/AUD is not particularly appealing at this juncture as much good news is already priced in.

"Furthermore, Chinese June data out next week may disappoint and weigh on the AUD near-term, while Australian June employment data due on 12 July are difficult to predict, particularly after three months of large positive surprises.

"Conversely, extreme short EUR positioning, a lack of ECB policy action near-term and possible policy-clarity at Monday’s Eurogroup meeting may see some support for the euro near-term."