US dollar rally at risk; Aussie dollar offers opportunities - BCA Research

The U.S. dollar's recent strength may falter as key indicators suggest it is overbought, BCA Research analysts said in a note.

Analysts recommend caution on the greenback and point to the Australian dollar as a promising alternative, driven by optimism in Australia's economy and favorable dynamics in global commodity markets.

The U.S. dollar, a momentum-driven currency, could maintain its short-term gains, BCA analysts state. However, structural and cyclical factors hint at potential weakness.

“We remain short the US Dollar Index from the 110 level,” BCA analysts said, citing the likelihood of softer U.S. policies under President-elect Donald Trump to sustain the dollar's rally.

The Australian dollar, by contrast, has been flagged for growth, particularly against the Canadian dollar (AUD/CAD ) and Chinese yuan (AUD/CNY ). Analysts highlight improving domestic conditions, robust labor markets, and Australia's key role in supplying high-grade commodities to China.

Australia’s strategic advantage includes its high-quality iron ore exports and a growing presence in critical metals needed for clean energy, such as nickel and cobalt. Additionally, China’s ongoing transition toward greener energy could sustain Australian LNG and mineral exports, according to BCA.

Domestically, Australia shows resilience, with low unemployment and housing demand bolstered by immigration and tourism. While consumer debt remains a challenge, BCA sees manageable risks for the Australian economy.

The AUD is priced near its 2008 and 2020 lows, analysts noted, implying limited further downside barring severe global shocks.

Source: Investing.com