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The Australian Dollar is primed to benefit as the U.S. Dollar bull run runs out of steam.
A new analysis says the Australian Dollar stands to be the big winner of an eventual capitulation in the U.S. Dollar rally.
According to Chester Ntonifor, Foreign Exchange Strategist at BCA Research, the U.S. dollar screens as overbought, and he has been a seller of the Dollar index (DXY) since it reached the 110 level.
“As a momentum currency, it can certainly keep rising. But some cyclical signals, like those out of Australia, suggest we are in a capitulation phase,” he says.
For the Dollar to keep rising, the BCA analyst thinks President Donald Trump will need to pursue more aggressive policies than priced.
“If we are right, a lower dollar will benefit the , our focus this week. We see enough positive signs to go long AUD, especially at the crosses,” says Ntonifor.
The Australian Dollar is 2025’s top-performing G10 currency, with outperformance accelerating since the Dollar retreated from its recent highs.
This confirms that USD underperformance benefits AUD against all peers in the current environment, which bodes for weakness in crosses such as and .
Ntonifor thinks there’s more to come, as he thinks Australia “is a great call option towards any improvement in China”.
USD screens as overbought, AUD as underbought. Image courtesy of BCA Research.
“Australia sells commodities, mostly to China. Financial conditions have been one of the best leading indicators for whether Chinese domestic entities (and quite frankly, global commodity consumers) will buy Australian goods. As such, easing in financial conditions in China represents a trigger for long AUD bets,” he explains.
Until now, the Chinese credit impulse has been weak, and the economy is in a liquidity trap. However, BCA Research thinks any revival of animal spirits in China will be positive, given a subdued money multiplier.
“This will benefit the AUD,” says Ntonifor
The domestic economy is another potential source of upside for the Aussie, with BCA assessing that it has been holding up relatively well.
In terms of valuation, BCA’s studies suggest the Australian dollar is cheap, making it a strong candidate against an overbought U.S. Dollar.
“We are long , given some beacons of optimism from down under, at least, relative to Canada. Go long as well,” says Ntonifor. “Given our models have been right in predicting the trajectory of a currency, over a three-to-five-year horizon, we will be longterm buyers of the AUD.
An original version of this article can be viewed at Pound Sterling Live
