Has the Australian dollar “overshot”?

Australian Dollar, which benefited from election of new Prime Minister, after resignation of Tony Abbott, incumbent unpopular Prime Minster, who lost party ballot.

The Australian dollar briefly jumped above US71¢ for the first time in two weeks on Monday morning, before dropping back to US70.84¢ in early afternoon trade, following a plunge in Chinese sharemarkets.

The correlation between the Aussie and Chinese equities is relatively new, and reflects mainly Australia’s close trading relationship with the world’s second-biggest economy and the link between China and global demand for commodities.

“The currency tends to spend more time on either side of fair value than it does actually trading at fair value”, Been wrote in a note on Monday, adding that ANZ now estimates fair value at US72¢.

St George was the only institution surveyed by AAP to say that the Aussie dollar would be above its current level of 71 U.S. cents by the end of the year.

The Australian dollar has hit a two-and-a-half-week high, getting a boost from higher commodity prices and a rally on stock markets.

“The overshoot is still justified by global circumstances and by the softer, more volatile growth outlook in particular”, Been said.

But when the Aussie is on the cheap side of fair value it has a much longer and flatter tail than the opposite, the economists say.

Speculation also dimmed that the Reserve Bank of Australia will cut interest rates, unlike the Reserve Bank of New Zealand. UBS economists Scott Haslem and George Tharenou said tourism was already emerging as one of the economy’s bright spots.

Turnbull Could Support Australian Economy, Drive Australian Dollar (AUD) Conversion Rate HigherTurnbull was quick to paint himself as a moderniser, commenting directly after his victory that, Australians “have to recognise that the disruption that we see driven by technology, the volatility in change is our friend if we are agile and smart enough to take advantage of it”. “The Australian dollar is expected to fall to 60 U.S. cents in the next year or so, with the risk that it will go even lower”.

This had left the Aussie overvalued by the usual measures, she said.