HSBC: ‘Vicious’ day of reckoning looms for Aussie dollar

THE Australian dollar has overtaken the Canadian dollar as the major currency most closely linked to broadly buoyant investor sentiment, leaving it overvalued and susceptible to a “vicious” decline, HSBC has warned.

In a research note, the British bank said the currency had been supported by a generally upbeat view among investors on the prospects for global economic recovery, drawing on the country’s large commodities exports.

Last week’s abrupt sell-off in commodity markets had a limited impact on the currency, but the high correlation between risk sentiment and the Australian dollar gave cause for concern, according to HSBC.

“We believe the valuation of the Australian dollar is extreme and any move to a risk-off scenario could see a vicious unwind in the (currency),” the bank said in a note to clients.

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