October 18, 2013

Will The Australian Dollar Rebound Before 2013 Ends?

Australia econ estimates

Analysts of foreign exchange Sydney are generally optimistic about the AUD. They are expecting the currency to rebound in the succeeding months. On a special note, BNP Paribas believes that the RBA’s easing cycle has ended in their opinion. Along with it, the delay to the start of Fed tapering still exist to support riskier currencies and the Emerging Markets bloc. Growth in Chinese economy has recovered since the middle of the year. Investors’ huge short position on AUD exposure implies a shift in attitude may result in a sharp rebound in the currency.

BNP Paribas forecast a climb versus both the JPY and USD in the succeeding months as Australian economic growth strengthens. Foreign exchange Sydney broker expect AUD/USD to moderate as the USD broadly rebounds. Based from the broker’s in house FX valuation model, the AUD/USD’s fair value is significantly above their computed fair values which is largely the outcome of the sharp improvement in Australia’s terms of trade since 2000.

Natural Gas Mining

On the mining space, Goldman Sachs anticipate a consensus 5% global LNG demand growth to 2020. The heightened price sensitivity is considered a headwind. Long term global LNG demand forecasts on a bottom up basis which now show a CAGR of 5.4% come year 2020, driven primarily by economic activity, cleaner energy mandates, reforms on natural gases, dropping domestic production and better energy supply concerns.

Foreign exchange Sydney analysts believe that the LNG remains a high cost fuel option. They recognise the buyer mix is shifting to a more price sensitive mechanism, driven by higher oil prices and the emergence of lower cost American LNG supplies. The weakening emerging markets currencies can do no help to this. Power generation is still the key player in Asian LNG consumption. However, new imports are servicing industrial and city gas consumption.

Foreign exchange Sydney economists argued that demand growth rates could be significantly higher at lower LNG prices. If the LNG cost curve for new projects can be lowered – currently most projects greater than $12/MMBtu, driving most non-US proponents to require a reasonably strong oil linkage to earn an economic return.US export projects, Floating LNG and brownfield expansion projects could offer the market some support in this regard. However once developed/committed, more challenging and costly greenfield projects will be required to meet strong longer term demand growth like East Africa, Canada, Russia.

Japan LNG demand is flat going to 2020 with city gas growth offset by lower power generation to accommodate for nuclear re-starts ramping up considerably in 2014. New regasification facilities in South East Asia are driving material LNG growth, most notably in Thailand and Singapore. This will generally displace oil demand and adding system flexibility. Hence, in many cases less price sensitive than India/China.

Goldman Sachs gas analysts also expect China’s increasing gas penetration for vehicles, industry and in some areas power generation to continue to climb. This is accompanied by price reform and appropriate infrastructure investment. India’s purchases of LNG could increase as well beyond 2015. The utilisation of LNG as a bunker fuel in the shipping industry poses meaningful upside potential, given increased global coordination on stricter marine emission controls which allows LNG to become an attractive economic choice for new ship construction.


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