A Report by CYS Global Remit Counterparty Sales & Alliance Unit
HSBC has identified several positive factors that could boost the Australian dollar (AUD), which is currently undervalued and presents significant upside potential.
China's Economic Policies as a Catalyst
China's recent economic stimulus measures are poised to support the AUD, especially given China's role as Australia's largest trading partner. While the immediate impact of these policies is uncertain, HSBC emphasizes that China's willingness to act decisively during economic challenges provides a supportive "policy put" for the AUD.
Divergence in Global Monetary Policies
While many global central banks are easing monetary policies, the Reserve Bank of Australia (RBA) maintains higher interest rates, which could attract investors seeking better returns. This divergence may support the AUD, as higher yields draw capital inflows compared to currencies with lower interest rates.
The AUD's Undervaluation
HSBC's models suggest the AUD is currently undervalued against the USD. Investors might find opportunities in positioning the AUD against other cyclical currencies like the euro, British pound, or New Zealand dollar, where central bank policies are more accommodative.
Conclusion
Despite short-term challenges, including geopolitical risks and uncertainties, the AUD could benefit from China's economic support, a stable RBA policy, and its undervaluation. Investors are advised to position the AUD against other cyclical currencies rather than the USD to leverage potential gains.
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