Long AUD/USD on narrowing yield differential - TDS

Analysts at TD Securities (TDS) offer their outlook on the AUD/USD pair over the coming months, given that the US dollar now appears overvalued.

Key Quotes:

“Yield advantage the US has over DM has shrunk.

USD had gained on the differentials but is now expensive and is perhaps now vulnerable to the change of direction.

"... dollar is overvalued …. losing the growth and equity support that it had plugging the valuation gap last year".

"Rates outside of the U.S. are cheap and they will essentially move higher as policy outside the U.S. starts to normalize”.

USD seen lower in a 3 to 6 month horizon.

"If U.S. rates are topping out because the Fed is essentially done, then there's room for catch-up, which would see the dollar weaken against G-10 currencies".

Long AUD/USD, citing that the markets are taking the wrong view on the RBA by expecting the Bank to cut instead of hike.”