The AUD has depreciated about 15% since April, to around USD0.90, thanks to a combination of a dovish and still easing-mode RBA, expectations of Fed tapering (meaning stronger USD), and the ‘slowdown’ in China.
However, USD0.90 is still an elevated rate compared with historical averages, reflecting still attractive yields. The average since the December 1983 float is USD0.756, while the average since 2007 is USD0.919. As is clear from the chart below, the AUD has finally depreciated to reach the post-2007 average, the first time in three years. Depending on one’s benchmark, the AUD remains overvalued by many ‘averages’, especially by the traditional PPP measure, which remains at USD0.70 via relative inflation rates. We find it difficult to see an outright collapse of the AUD given still attractive AAA-rated yields compared with global peers (chart below). Perhaps this is why Australian bonds have outperformed the recent global selloff.
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