Bank of America has rolled out a new valuation model for the Australian dollar that places its fair value at 0.7240, roughly 1% above the spot level of 0.7185 recorded on April 29, 2026. The investment bank also retains a constructive outlook on the currency, keeping a year-end target of 0.74.
The model combines three components: an export-price commodity index, the three-year yield spread and a newly added variable that tracks the copper-to-S&P 500 ratio. BofA said this copper-to-S&P 500 metric serves as a proxy for global growth relative to U.S. equity outperformance and that its inclusion helps the framework better reflect recent moves in the Australian dollar.
According to the bank, several potential drivers could push the currency higher. These include a hawkish policy divergence between the Reserve Bank of Australia and the Federal Reserve, a possible U.S.-China trade deal and increases to superannuation fund hedge ratios. The bank noted that the Australian dollar's sensitivity to global growth could become a positive factor if U.S.-China trade relations improve.
Historically, periods when commodities outperform U.S. equities have tended to support the Australian dollar, and BofA identified the copper-to-S&P 500 ratio as a key variable to monitor for directional cues. The bank described the model as a practical instrument to guide its Australian dollar view amid elevated volatility and headline-driven market movements.
The model's three inputs reflect the nexus of commodity prices, interest rate differentials and relative performance between metals and U.S. equities. BofA's framing signals that shifts in any of those areas - commodity markets, the yield curve and equity performance - will influence its fair value calculation for the AUD.
While the bank did not change its year-end target, the fair value estimate implies modest near-term upside from the then-spot level, with the copper-to-S&P 500 ratio singled out as a prominent watchpoint.
Key points
- Bank of America sets a new AUD fair value at 0.7240 and keeps a year-end target of 0.74.
- The model uses an export-price commodity index, the three-year yield spread and a copper-to-S&P 500 ratio to capture global growth versus U.S. outperformance.
- Sectors impacted include commodities (metals/mining), U.S. equities and financials such as pension and superannuation funds.
Risks and uncertainties
- Policy divergence risk - Differences between the Reserve Bank of Australia and the Federal Reserve could alter the AUD's trajectory, affecting FX markets and fixed-income sectors.
- Trade relations uncertainty - The potential for a U.S.-China trade deal is cited as an upside risk tied to global growth and commodity demand, notably affecting mining and metals sectors.
- Hedge ratio changes - Adjustments in superannuation fund hedge ratios could influence demand for the AUD and impact institutional financial flows.