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Aug 24 - 02:55 PM

HSBC's Take on AUD: A Tactical Bounce or a False Dawn?

By eFXdata  —  Aug 24 - 01:30 PM

The Australian Dollar (AUD) has recently experienced a temporary surge, but is this the beginning of a structural rebound or just a fleeting moment? This in-depth analysis explores the different factors driving the dynamics of the AUD/USD pair.

  1. A Week of Resilience:

    Short-lived Euphoria: The AUD displayed a week-long bounce, which is showing signs of faltering, suggesting the uptick was merely a tactical opportunity.

  2. Valuation Insights:

    Toward a Lower Fair Value: Our short-term valuation model, influenced by declining China-related assets, global equities, and yield spreads, signals a lower fair value range of 0.6442-0.6629 for the AUD/USD.

    Limited Upside: A rise to the mid-range would only imply a modest 1.3% upside from the current spot.

  3. The Differentiators: Tactical vs Structural Rebounds

    Lacking Foundations: While a tactical rebound can occur due to oversold conditions, a structural one requires concrete building blocks, which are currently missing for AUD/USD.

  4. Challenges Ahead: Iron Ore and Rate Cuts

    Iron Ore Woes: Demand for iron ore remains dismal due to China's weak property sector, directly impacting the AUD.

    Rate Cut Convergence: Risks are leaning towards a synchronization in rate cut outlooks between the Federal Reserve and the Reserve Bank of Australia (RBA).

    Limited Room for AUD: The already modest rate cut expectations for the RBA constrains the scope for relative rates to move in favor of the AUD.

Conclusion: The recent AUD bounce appears more tactical than structural, driven by oversold conditions rather than underlying fundamentals. With challenges ranging from the gloomy iron ore market to converging rate cut outlooks between the Fed and the RBA, the AUD faces an uphill battle. Any further bounces should be viewed as tactical opportunities rather than signs of a sustained rebound.

HSBC Research/Market Commentary


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