Currencies of commodity-exporting countries got beaten up in September, but these experts say the Australian dollar is looking good.
September was rough almost everywhere in the currency markets, but so-called commodity currencies really took it on the chin.
Is it time to take another look at these risk-on assets?
The strategists at RBC Capital Markets think so. For starters, they expect the overall tone of the currency markets to improve because the flurry of negative economic surprises seems to be slowing. Based on an "economic surprise index" they have developed to measure the rate of negative surprises, "As we leave Q3 and head into Q4, economists seem to be getting things significantly less wrong than they have through the summer months," they wrote in a note to clients.
Even with the mess in Europe dragging on, the decline in negative surprises should help stabilize risk appetite, RBC says, and that in turn should "shift the focus to relative value in G10 commodity currency space." Within that group, they say the Australian dollar is especially attractive. The Aussie, the New Zealand dollar, and the Canadian dollar all declined 8-10% in the third quarter, but the Aussie offers the highest yield among the G10 currencies. And if expectations for interest rate cuts are not met, that could provide added lift. RBC thinks the Australian dollar could reach parity against the US dollar by the end of the year.
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