At the current exchange rate of $US0.93, demand for the Australian dollar is in line with supply for the first time since 2011, Westpac told investors today.
The AUD has declined significantly past parity in the past month, as the Fed dialed back its quantitative easing measures and the Chinese and commodity markets fell.
Westpac currency analysts say the fair value of the AUD has declined from $US0.95-0.96 a few months ago to $US0.91-0.92 now.
“We have recently lowered our expectations for the mid-year peak in bulk commodity prices and the external financing situation has shifted,” analysts wrote.
“Each of these factors contributes to our quantitative assessment of the AUD’s fair value against the USD … The currency is trading around its equilibrium value for the first time since late-2011.
“As we do not agree with the markets’ current opinion on the timing and scale of any future change in US monetary policy, given our underlying scepticism on the growth outlook, it is our view that a modest premium to fair value will return, and then persist through the forecast horizon.
“On our projections, fair value through most of 2014 will be ~90¢. Therefore, we now forecast AUD/USD trade to centre on the low to mid 90¢ area next year, from the 96¢ average previously predicted.”
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