- The continued weakness of the AUD has emerged from heightened policy uncertainty which negatively affected international trade and business investment
- The data shows AUD’s weakness continued over the past 12 months, mainly against Swiss Franc, Japanese Yen, USD and Canadian Dollar throughout the past 12 months
- Whilst a weak AUD is a negative indicator for the performance of the economy, the trend is beneficial for investors with overseas unhedged portfolio by as much as 6% over the past 12 months
- After persistent declines over the past few years, the outlook for AUD against major pairs is more balanced from here based on Foresight’s modelling
- The AUD is expected to depreciate slightly against USD, Pound and Yen. Notwithstanding the Brexit issues, the model is expecting AUD to appreciate against the Pound by 2.7% over the next 12 months. In addition, the model is expecting 5.5-6% appreciation of AUD against the Swish Franc and the Euro over the next 12 months.
- Based on the expected returns for AUD against major currencies and using the current currency weight of the equity market (proxied by the MSCI World), the expected currency effect is modest over the next 9 months (-1.24%) and flat over the next 12 months.
- With a more balanced risk-reward profile, it’s difficult to make a case for currency hedging in the near term.
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