The key points are as follows:

  • The closure of speculative short positions in the $A, a bounce in commodity prices, delays in Fed rate hikes and expectations the next interest rate move by the Reserve Bank of Australia (RBA) is up, have stabilised the $A over the last year.
  • However, the downtrend in the $A will likely resume as commodity prices remain subdued, the interest rate differential in favour of the $A narrows to zero and goes negative and as now-long speculative positions reverse. Expect a fall below $US0.70 by year end.
  • Given the downside risks for the $A it makes sense for Australian investors to maintain a decent exposure to foreign currency via unhedged global investments.
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