Recent drop in AUD likely to extend over coming weeks

RBA Governor Stevens did not talk the AUD low in hie recent interveiw with AFR, indicating little impetus to ease further, but on currency he noted that the exchange rate is adjusting to TOT and further adjustment was possible. This was hardly aggressive, but there is likeliness for further weakness.

If the commodity prices and currency are at current levels, this indicates that real exchange rate will begin next year 9% overvalued. This is well pver a one standard deviation divergence of 6.5%.

"With a collapse in real resource share prices pointing to a deeper slump in export prices, we estimate that fair value could fall a further 6% next year. We believe this points to significant downward pressure on the exchange rate and supports our below-consensus forecast that the currency will drop to 63 US cents by the end of 2016", says Barclays in a research note. 

The recent drop in AUD is likely to extend over coming weeks, with little on the data front to give any support to the currency. Over the next couple of weeks, the only release of note is RBA private sector credit.