Investing.com — The U.S. dollar’s recent strength could be waning as key indicators suggest it is overbought, analysts at BCA Research said in a note.
Analysts advise caution on the dollar and point to the Australian dollar as a promising alternative, driven by optimism in the Australian economy and favorable dynamics in global commodity markets.
The US dollar, a momentum-driven currency, could maintain its short-term gains, BCA analysts say. However, structural and cyclical factors indicate potential weakness.
“We remain short from the 110 level,” BCA analysts said, citing the likelihood of softer US policy under newly-elected President Donald Trump to support the dollar’s rally.
The Australian dollar, on the other hand, is on the cusp of growth, especially against the Canadian dollar () and (). Analysts highlight improving domestic conditions, robust labor markets and Australia’s key role in supplying quality raw materials to China.
Australia’s strategic advantage includes high-quality iron ore exports and a growing presence in critical metals needed for clean energy, such as nickel and cobalt. Additionally, China’s continued transition to greener energy could support Australia’s LNG and minerals exports, BCA said.
Domestically, Australia is showing resilience, with low unemployment and low housing demand, supported by immigration and tourism. While consumer debt remains a challenge, BCA sees manageable risks to the Australian economy.
The price of the AUD is near the lows of 2008 and 2020, analysts noted, implying limited further downside barring severe global shocks.
