Danish bank suggests selling Australian dollar, which may drop to around 0.66 within three months!
According to a new strategic statement from Danish Bank, it is now time to sell the Australian dollar as the market has fully digested expectations of a soft landing in the United States.
Soft landing refers to the market expectation that the Federal Reserve has successfully reduced inflation while avoiding a substantial economic recession.
So, what does this have to do with the Australian dollar?
The Australian dollar is considered a high beta currency. When the US dollar falls and the stock market rises, the Australian dollar often performs better than other G10 currencies. This makes selling the Australian dollar a tool to express that the recent market rise and US dollar decline have reached their limits.
Danske Bank believes that the market has perfectly digested the Federal Reserve's loose cycle. Further weakness in global economic growth indicators may begin to put pressure on cyclical currencies, including the Australian dollar.
If the US economy proves to be more resilient than expected again, this is another risk facing the Australian dollar. This will raise expectations of the Federal Reserve ending its interest rate cut cycle, thereby pushing up the US dollar and putting pressure on the Australian dollar.
Antti Ilvonen, a senior analyst at Danske Bank, said, "We believe that the risk return of shorting the Australian dollar against the US dollar is attractive after the recent uptrend
The goal of Danish Bank is to reduce AUD/USD to around 0.6600 within three months (i.e. a drop of over 250 points from the current level).
AUD/USD daily chart
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