The AUD remains persistently high as markets continue to assume that global short-term interest rates will remain lower for longer, notes Australia and New Zealand Banking Group (ANZ).
“The resulting environment of suppressed volatility is encouraging yield-seeking behaviour and driving the AUD further from fundamentals,” ANZ argues.
“Rising trends in both US activity and inflation means this environment is not sustainable. When the regime shifts the AUD will depreciate sharply,” ANZ adds.
In line with this view, ANZ upgrades its near-term forecasts but continue to expect the AUD will decline in 2015.
“Fundamentally, all of this continues to highlight that the AUD should be trading closer to fair value and we maintain our forecast that the AUD will trade to USD0.84 by June 2015. However we think the pace of decline will be somewhat slower this year and raise our forecast for the AUD to USD0.87 by year end,” ANZ projects.