Australian Dollar: 'An Accident Waiting to Happen' says Lloyds Bank analysis

Lloyds Bank have this morning warned that the Australian currency could be overpriced following an assessment of the latest weekly speculative data from the CFTC (What is this? The Definition Can Be Found Here).

In a morning report to clients Adrian Schmidt at Lloyds Bank says:

"AUD positioning increasingly looks like an accident waiting to happen. While there has been no significant change in the last week, the case for AUD gains looks very weak, with domestic data in general coming in on the soft side, and AUD support coming from a combination of strong Chinese numbers, strong iron ore prices, and strong global equities by dint of the historic AUD correlation with risk positive moves in equity and commodity markets."

Schmidt says that with a big positive risk premium already in place in the AUD, strong global equity moves form here are more likely to argue for a reduction in the risk premia associated with the EUR and/or the USD, as such moves are likely to be an indication of expected recovery in these markets.

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"Alternatively, the AUD looks positionally the most vulnerable to any downturn in risk appetite, and could still also be undermined on a relative value basis by narrowing yield spreads as the RBA continues to looks more likely to cut rates than the central banks in other relatively high yielding risk positive currencies," says Schmidt.

Latest spot exchange rates: Australian Dollar Today

The pound / Australian dollar exchange rate is 0.6 pct in the red at 1.5225.

The Australian dollar / US dollar is a third of a percent higher at 1.0572.

The Australian dollar / New Zealand dollar is 0.35 pct up at 1.2559.

Please note these are spot market rates, please request a quote for the most competitive retail market rate here.

The Outlook for the Australian Currency

"Looking to the week ahead, despite lacklustre Australian retail sales data, pricing for the RBA’s Feb meeting has eased back to -8bp," says Sean Callow at Westpac.

Callow says the global outlook looks to be key to AUD/USD:

"Despite the Dec FOMC minutes, there seems little prospect of QE4 being wound up as soon as mid-year, as fiscal contraction keeps a lid on US H1 job creation.

"So the newly created USD will keep flowing, spilling over to USD/Asia and elsewhere. European sovereign concerns are on the backburner for now, despite some tension in Portugal, while China’s growth momentum is intact.

"The latter appears to still be news to some bears, judging by the 50 pip rally in AUD/USD last week as China’s Dec export growth rebounded sharply from a misleadingly soft Nov headline. Chinese trade officials - not known for their effusiveness - predicted stronger exports in Q1."

British pound exchange rates at Currency Watch

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