Introduction#
Bank of America (BofA) has released a new model predicting the fair value of the Australian dollar (AUD) at 0.7240, which is about 1% higher than its current rate of 0.7185 as of April 29, 2026. The bank holds a positive outlook for the AUD, setting a year-end target of 0.74.
Model Components#
The new model developed by BofA takes into account several factors, including the export-price commodity index, the yield spread over three years, and a new variable that tracks the ratio of copper prices to the S&P 500 index. This ratio serves as an indicator of global economic growth compared to U.S. market performance. BofA believes that incorporating this variable provides a clearer picture of recent movements in the Australian dollar.
Upside Risks#
BofA has identified several factors that could positively influence the AUD. These include a potential shift in monetary policy between the Reserve Bank of Australia (RBA) and the Federal Reserve, the possibility of a trade agreement between the U.S. and China, and potential increases in hedge ratios for superannuation funds. The Australian dollar is particularly sensitive to global economic conditions, which could benefit from an improvement in U.S.-China trade relations.
Historical Context#
Historically, when commodities perform better than U.S. equities, the Australian dollar tends to strengthen. BofA notes that this trend could provide additional support for the AUD this year. The copper-to-S&P 500 ratio is highlighted as a crucial indicator to watch for predicting currency movements.
BofA describes its new model as a valuable resource for navigating the current market's volatility and headline-driven fluctuations.