Australia: Strong export data pushes AUD to overvalued levels - BNPP

Australia reported its lowest current account deficit for 15 years as the deficit fell by two-thirds to AUD $3.9 billion in Q4 notes analysts at BNP Paribas.

Key Quotes

“The improvement was driven by higher commodity prices especially iron ore and coal. Iron ore prices rose from $56 per tonne at the start of Q4 to $92 today suggesting the improvement should continue through Q1 at least. Still, AUDUSD is now appearing very overvalued against 2-year rates spreads (see chart) suggesting a vulnerability as with other USD pairs.”

“Despite the strong data, AUDUSD has failed to appreciate which is likely the result of extended long positioning. AUD longs have reached the highest level since 2012 and now stand at +31 according to BNP Paribas FX Positioning Analysis (scale +/- 50). We view the current level as opportune selling levels targeting a move to 0.74.”