Investing.com– The US dollar’s recent strength may falter as key indicators suggest it is overbought, analysts at BCA Research said in a note.
Analysts recommend caution with the dollar 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 US dollar, a momentum-driven currency, could maintain its gains in the near term, BCA analysts say. However, structural and cyclical factors point to possible weakness.
“We remain short from the 110 level,” BCA analysts said, citing the likelihood that softer US policies under President-elect Donald Trump will sustain the dollar’s rally.
On the contrary, it has been noted that the Australian dollar will grow, especially against the Canadian dollar () and (). Analysts highlight improving domestic conditions, strong labor markets and Australia’s key role in supplying high-quality raw materials 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 to greener energy could sustain Australian LNG and mineral exports, according to BCA.
Domestically, Australia shows resilience, with low unemployment and housing demand driven by immigration and tourism. While consumer debt remains a challenge, BCA sees manageable risks to the Australian economy.
The AUD price is close to its 2008 and 2020 lows, analysts noted, implying limited further decline barring severe global shocks.