Investing.com– The U.S. dollar’s recent strength could weaken as key indicators suggest it is overbought, analysts at BCA Research said in a note.
Analysts recommend caution on the greenback and view the Australian dollar as a promising alternative, driven by the optimism of the Australian economy and the favorable dynamics of global commodity markets.
The US dollar, a dynamic currency, could maintain its gains in the near term, BCA analysts say. However, structural and cyclical factors point to potential weakness.
“We remain short from the 110 level,” BCA analysts said, citing the likelihood of looser U.S. policy under President-elect Donald Trump to support the dollar’s rise.
The Australian dollar, on the other hand, has been marked for growth, especially against the Canadian dollar () and (). Analysts point to improving domestic conditions, robust labor markets and Australia’s key role in supplying high-quality raw materials to China.
Australia’s strategic advantage lies in its exports of high-quality iron ore and its growing presence in critical metals needed for clean energy, such as nickel and cobalt. Additionally, according to BCA, China’s ongoing transition to greener energy could support Australian LNG and minerals exports.
Domestically, Australia is showing resilience, with low unemployment and demand for housing supported by immigration and tourism. Although consumer debt remains a challenge, BCA believes the risks to the Australian economy are manageable.
The Australian dollar price is near its 2008 and 2020 lows, analysts noted, implying limited further declines, barring serious global shocks.
