“A fortnight after the US election, we expect continuing weakness in the dollar bloc. While we would sell the entire bloc against the US dollar, we argue that the outlook remains most bearish for the Aussie.
First, rising US rates will likely continue to weigh on the commodity currencies, but the Aussie should suffer from the sharpest yield convergence in the next months.
Second, in terms of trade, the broad commodity complex is at risk of snapping back into line with the strong USD (chart 1). Idiosyncratically, however, Australian miners are most imminently at risk from a bursting of the speculative bubble in base metals and bulk commodities.
Third, the Aussie faces the strongest headwinds from being the most consensus net long in G10 as well as from its extreme overvaluation, which is second only to the RMB and CHF. At the other end, CAD is best protected by sizeable net shorts and modest undervaluation. The kiwi benefits from neither but consistently sees a significant seasonal boost of almost 2% in December”.