John Horner, Currency Strategist at Deutsche Bank AG, discuses the Australian Dollar and its forecas

I think much of the overvaluation that was previously perceived in the Australian Dollar has been unwound in recent weeks. Where the fair value from here is depends on evolution of commodity prices. We do see the currency falling further in the coming weeks as the market pre-empts the Fed's policy moves. However, from the valuation perspective the previous overvaluation on a number of models has now been largely corrected.

We still see room for a further rate cut as the Australian economy is still quite soft, labour market indicators, in particular, seem to continue to indicate some pressure on the unemployment rate, whereas inflation appears to be very well contained allowing room for more stimulus to be put in the economy by the RBA. However, that is going to depend to a considerable extent on how the Australian Dollar performs. If it continues to climb, the currency will be doing the RBA's work. Furthermore, with the housing market clearly showing signs of picking up that will make the policy makers less likely to low rates further. To sum up, we still see room for further rate cut, but the further currency falls the less likely that easing will come.

In the near term tapering expectations are now the dominant driver of the market. Therefore, on the FX carry more generally we think the Australian Dollar is going to be caught up particularly in light of the recent disappointing Chinese data. Thus, we see a further fall towards the 88-90 U.S. cents target region likely to happen in the next few weeks. Beyond that we are still looking at a very stimulatory stance of growth policy even as the Fed starts to scale back its bond purchases. Moreover, we expect the Chinese economy to recover in the second half. Therefore, we still have the Aussie Dollar recovering to around 99 cents by the year end, but in the near term the Fed and Chinese data are likely to be the dominant forces pushing the currency lower.