Exchange Rates

UniCredit Bank have today put forward their argument for a fall in the euro to Australian dollar exchange rate.

For reference, the EUR / AUD is 0.9 pct in the red on a day-to-day basis at 1.4164.

(Please note that your bank will access the above market rates but will sell on currency to you at another rate; this spread is where they make their money. However, an independent FX provider can also access currency at the above rates BUT will actively undercut the offer made by your bank, thus delivering you up to 5% more currency. Please find out more here.)

Forecasting a slump in the Euro vs Aussie

Dr. Vasileios Gkionakis, Global Head of FX Strategy at UniCredit Bank outlines his three point case for a lower EUR/AUD forecast:

"Firstly, examining quarterly returns since 2000, we find that the 2Q13 EUR-AUD ascend was excessive; similar historical quarterly increases – although not very frequent – have led to strong negative returns over the next quarters. With EUR-AUD virtually flat so far in the third quarter, we think that mean reversion suggests meaningful downside to the currency
pair in the short-term.

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"Secondly, the improvement in Chinese data argues in favor of Aussie strength. We construct a simple dummy variable model and show that historically, similar movements in the official Chinese PMI have been associated with strong negative excess EUR-AUD returns on a three month ahead horizon.

"Thirdly, following the substantial appreciation in EUR-AUD since the 1Q13, the currency pair is no longer undervalued; in fact, based on our newly constructed "BEER by Unicredit" valuation model, the implied equilibrium value of EUR-AUD is around 1.36, making the cross currrently overvalued. Although convergence to "fair" value takes long periods of time, we think that this "switch" from "under" to "over" valuation no longer presents an obstacle for the currency pair to move lower in the short term."