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US dollar earners struggle despite A$ weakness

Sam Ferraro

Global Founders Funds Management

Since September, the Australian dollar has remained broadly steady at a little above 70 US cents. Evidente's currency model shows that at current levels, the A$ is trading broadly in line with fair value. Despite renewed A$ depreciation in the past year, ASX listed US dollar earners have under-performed due to the fact that the overweight bet has remained a crowded trade. From a longer term perspective, the Big Mac index suggests that the A$ is under-valued against the US$ by 25%, which represents the biggest under-valuation since 2003. Deviations from purchasing power parity can extend for long periods. But short-sellers of the Australian dollar should be cognisant that recent currency gyrations reflect primarily US$ over-valuation. At present, the US$ is over-valued against all but three currencies based on the Big Mac index. (VIEW LINK)

Sam Ferraro
Senior Portfolio Manager
Global Founders Funds Management

Managing Director of Global Founders Funds Management, Sam has over 20 years experience in financial markets, with Merrill Lynch, JBWere and Goldman Sachs.

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