A slowing US economy and brisk growth in Australia is going to trigger a rally in the Australian dollar to levels seen last year ago, said UBS Group AG head of currencies in Asia.
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If Fed Can Thread the Needle rebounded from a two-year low set last month, the Aussie could increase 11% from that level to as high as 76 US cents by the end of December. The Swiss bank believes that the currency will be able to climb to 78 US cents by the end of the first quarter next year.
The one trade that I would love to do is being long on the Australian dollar -- I still think it's a phenomenal trade, said Dominic Schnider, head of commodities and Asia Pacific currencies at the bank.
When the US slows down and the Australian economy is brimming along, people will suddenly say that it shouldn't trade where it is. Australia's economy increased faster than expected last quarter, which has bolstered the central bank case for raising interest rates by 40 basis points at its meeting on Tuesday. The country, an exporter of wheat, could benefit from uncertainty over supply of the grain from Ukraine and India, as well as a rebound in iron ore prices as China loosens its Covid restrictions.
Foreign-exchange analysts are expecting a resurgence of risk-taking, but are ramping up bets on the Aussie as the rallies in haven currencies lose steam. The Aussie is the second best performing among its Group of 10 peers this year, after the Canadian dollar.
Global investors are increasingly jittery as markets are navigating a world of rising interest rates, soaring inflation and the impact of China's Covid-zero policies on the world economy. Some are on edge over whether the Federal Reserve's tighter policies will cause a recession.
In an environment where many interest rate hikes have been priced in and investors look to pare back some expectations, the least pricing out will happen in commodity-linked economies, which gives them an edge, Schnider said.
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