AUD: The linkage to commodity prices is not as strong as it used to be – Goldman Sachs
|Analysts at Goldman Sachs note that "following a surge in commodity prices, Australia's terms of trade have improved dramatically, yet the currency has broadly underperformed so far this year, suggesting that the aussie dollar’s correlation with the commodity prices may have weakened.
Key quotes
“Part of the reason for this seems to be that better terms of trade have less of a positive impact on the economy now than before. Higher iron ore prices are not triggering new investment like in the last commodity cycle and, rather than boosting national income, much of the earnings are repatriated abroad."
"Meanwhile, other important determinants of the Australian Dollar have been much softer. For both structural and cyclical reasons, interest rate differentials have narrowed considerably. Given softer pre-pandemic conditions and the RBA's focus on realized price and wages inflation, rates are likely to stay lower for longer in Australia than its peers, which would further weigh on the currency."
"In addition, although a number of equity indices are at or near all-time highs, underlying growth barometers have been softer, consistent with AUD's underperformance. Overall, we do not think the currency is particularly out of alignment; we see more underperformance for AUD against its close peers, and it would not be our preferred currency in G10 for pro-cyclical USD shorts."
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.