Business Maverick: Buying Australian dollars is a phenomenal trade, UBS says

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A slowing US economy and brisk growth in Australia will trigger a rally in the Australian dollar to levels last seen more than a year ago, UBS Group AG’s head of currencies in Asia said.

After rebounding from a two-year low set last month, the Aussie could rise 11% from that level to as high as 76 US cents by the end of December. The Swiss bank sees potential for the currency to climb to 78 US cents by the end of the first quarter next year.

“The one trade I would love to do is being long on the Australian dollar – I still think it’s a phenomenal trade,” said Dominic Schnider, head of commodities and Asia Pacific currencies at the bank. “Once we see that the US slows a little bit and the Australian economy just doing very well and brimming along, people will suddenly say that it shouldn’t trade where it is.

Global investors are growing increasingly jittery as markets navigate a world of rising interest rates, soaring inflation and the impact of China’s Covid-zero policies on the world economy. Some are also on edge over whether the Federal Reserve’s tighter policies will cause a recession. In an environment where possibly too many interest rate hikes have been priced in and investors look to pare back some expectations, the least pricing out will happen in commodity-linked economies, which gives them an edge, Schnider said.

 

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