CBA Still Look For Move Lower In AUD/USD, Even With Aussie “Undervalued”

CBA note that “AUD/USD is very undervalued because of China’s COVID lockdowns and the war in Ukraine.”

• They write “our fair value equation for AUD/USD includes commodity prices, the interest rate differentials between Australia and the U.S. and the VIX index to capture risk sentiment. According to our estimates fair value for AUD/USD falls in the range of $0.79‑0.90 centring on $0.85, compared to the current spot price near $0.69.”
• “Despite the current undervaluation we expect that a recession in the U.S. and some other major economies will push AUD/USD even lower.”
• “We have undertaken some scenario analysis including an increase in the 2-Year swap differential between Australia and the U.S. to ‑120bp, a 40% fall in commodity prices from very high levels and a lift in the VIX to 35pts and estimate that fair value for AUD/USD falls to $0.62 (range $0.58‑0.66).”