AUD/USD: The commodity story remains super supportive for the aussie – Westpac

The Australian dollar’s strong support from commodity prices produces fair value estimates in the mid-0.80s yet recent price action has been in the mid-0.70s. What’s more, the reverberations from the FOMC keep a lid on the aussie, around say 0.7645, but support around 0.7500 looks solid given equity rebound and resilient commodities, according to economists at Westpac.

AUD/USD fair value range mid 0.8550

“Commodity prices have been choppy but overall remain very supportive for the aussie. Along with iron ore still above $200, prices are robust for both thermal and coking coal, plus LNG as oil keeps surging.”

“We are now projecting a higher profile for both US and Australian yields, but the rise in AU yields had the larger impact on our short-term fair value model. It is now in the mid-0.80s, versus spot in the mid-0.70s. Spot divergence from any fair value model of any currency is to be expected but it is hard to not see A$ higher multi-week/month.”

“We had been looking to buy AUD/USD as cheaply as 0.7400/25, with fair value nearer 0.85. But the quick stabilisation in equities and mixed Fed rhetoric post-meeting suggest a new, lower, range is in place, mostly 0.7500-0.7645.”