The A$ appreciated markedly through October 2021, rising almost 5 cents to 0.75 A$/US$ as local bond markets repriced the prospects for local interest rate increases over 2022. Australian equities, on the other hand, underperformed global equities through October (flat vs +5% for MSCI world index) as local investors became fixated on whether the combination of rising interest rates and the A$ would quash both earnings and valuations.
We would not rule out the prospect of the A$ appreciating further over the next 12 months, perhaps to as high as 0.80, as both Australian economic growth and corporate earnings improve in absolute terms as well as relative to other regions.
Does a rising A$ create a headwind for the equity market? Our short answer is that headwind is not insurmountable, given the earnings recovery thematic is likely to still win the day. But there are also several underlying reasons around the composition of the Australian market as to why investors should not be afraid of a potentially stronger A$ into 2022. IN this report we cover:
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John is a leading investment strategist with 20 years experience.