Investing.com– The recent strength in the US dollar could weaken as key indicators suggest it is overbought, analysts at BCA Research said in a note.
Analysts recommend caution regarding 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 hold on to its short-term gains, analysts at BCA said. However, structural and cyclical factors point to potential weakness.
“We remain short of the 110 level,” BCA analysts said, citing the likelihood of softer US policy under President-elect Donald Trump to sustain the dollar’s rise.
In contrast, the Australian dollar is marked higher, especially against the Canadian dollar () and (). Analysts point to improving domestic conditions, strong labor markets and Australia’s key role in supplying China with high-quality goods.
Australia’s strategic advantage includes exporting high-quality iron ore and the growing presence of critical metals needed for clean energy, such as nickel and cobalt. In addition, China’s transition to greener energy could sustain Australia’s LNG and mineral exports, according to the BCA.
Domestically, Australia is showing resilience, with low unemployment and housing demand fueled by immigration and tourism. While consumer debt remains a challenge, the BCA sees manageable risks to the Australian economy.
AUD prices are near 2008 and 2020 lows, analysts noted, implying limited further declines barring serious global shocks.
