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CBA Outline Competing Forces When It Comes To Fair Value And Outlook

AUD
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CBA note that their “fair value equation shows AUD/USD fair value has lifted a little in recent months. Lower commodity prices and a more negative interest rates differential between Australia and the U.S. have weighed on fair value. However, an improvement in risk sentiment as measured by the lower VIX index has added to fair value for AUD/USD. Our estimate of fair value currently centres on $0.80 with a range of $0.74‑0.86. AUD/USD has risen in recent months thanks to an improvement in sentiment as the Chinese economy reopened but still remains well below our estimates of fair value. The undervaluation can support AUD/USD over time. However, as the year progresses and the global economy slows we expect the AUD/USD to weaken.”

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CBA note that their “fair value equation shows AUD/USD fair value has lifted a little in recent months. Lower commodity prices and a more negative interest rates differential between Australia and the U.S. have weighed on fair value. However, an improvement in risk sentiment as measured by the lower VIX index has added to fair value for AUD/USD. Our estimate of fair value currently centres on $0.80 with a range of $0.74‑0.86. AUD/USD has risen in recent months thanks to an improvement in sentiment as the Chinese economy reopened but still remains well below our estimates of fair value. The undervaluation can support AUD/USD over time. However, as the year progresses and the global economy slows we expect the AUD/USD to weaken.”