Danske Bank has issued a new strategic note suggesting that it's time to sell the Australian dollar (AUD, Financial) as the market has fully priced in a U.S. soft landing. A soft landing refers to the Federal Reserve's ability to lower inflation while avoiding a significant economic downturn.
The Australian dollar is considered a high-beta currency, often outperforming other G10 currencies when the U.S. dollar weakens and stock markets rise. Hence, selling AUD is seen as a tool to express the recent market rally's and the dollar's decline limits.
Danske Bank believes the market has already fully absorbed expectations of the Fed's easing cycle. Weakness in global economic growth indicators might pressure cyclical currencies like the AUD. Furthermore, if the U.S. economy proves more resilient than expected, it poses another risk for the AUD. This scenario could fuel expectations for the Fed to end its rate-cutting cycle, thereby strengthening the dollar and pressuring the AUD.
Danske Bank's senior analyst, Antti Ilvonen, finds the risk-reward of shorting AUD/USD attractive after the recent rally. Danske Bank targets the AUD/USD to fall to around 0.6600 within three months, over 250 points down from its current level of 0.6877/78.
