Why Investors Should Consider Buying the Australian Dollar
Investors should take note of the Australian dollar as it enjoys three crucial tailwinds that could potentially drive its value higher. Let’s dive into the factors that make the Aussie dollar an attractive investment option.
1. Policy Support from China
- China’s optimism is a key factor supporting the Australian dollar.
- Recent stimulus announcements from China have been significant.
- The coordinated policy measures across fiscal and monetary authorities in China could benefit the Australian dollar.
2. Easing Bias Among Major Central Banks
- Global financial conditions are becoming more supportive for risky assets due to the growing easing bias among major central banks.
- This contrasts with the Reserve Bank of Australia’s “restrictive-for-longer” stance.
- The AUD could benefit from both risk sentiment and relative rates channels over time.
3. Undervaluation and Cheapness of the Aussie Dollar
- The Australian dollar appears undervalued compared to China sentiment gauge.
- Based on models, the AUD-USD also screens cheap, considering key drivers.
Despite these positive factors, trading a positive AUD stance may face challenges in the near term due to Fed repricing, potential geopolitical risks, and US election uncertainties. However, investors can position for AUD outperformance against other cyclical currencies with a lower beta to China’s growth, a strengthening central bank easing bias compared to the RBA, and a less favorable terms of trade dynamic.
Conclusion
HSBC recommends considering the Australian dollar for investment opportunities, emphasizing the potential upside driven by policy support from China, easing bias among major central banks, and the current undervalued status of the currency. While short-term challenges may exist, a strategic approach focusing on outperformance against specific currencies could yield favorable results for investors.