Australian Dollar on Cusp of New Supercycle: Barclays
- Written by: Gary Howes
Image © Adobe Images
Barclays issues a bullish research note covering the Australian dollar's prospects.
In the note, analysts say the currency could be about to benefit from "a new commodity supercycle" that will be driven by the AI boom.
The supercycle will be "a secular tailwind for the AUD, posing upside risks to our forecasts," says Lefteris Farmakis, analyst at Barclays.
"The Australian dollar has been the star performer in the G10 since last summer, even prior to the broad-based dollar decline in January. Importantly, the FX rally has coincided with the spike in prices for industrial commodities in the last few months," he explains.
Compare GBP to AUD Exchange Rates
Find out how much you could save on your pound to Australian dollar transfer
Potential saving vs high street banks:
A$4,875.00
Free • No obligation • Takes 2 minutes
The AI supercycle is fundamentally an electricity story as the required computing power demands enormous, stable power loads, which pulls demand into:
✳️ Uranium - as countries extend and restart nuclear reactors to supply baseload power
✳️ Natural gas - fast-build gas plants to stabilise grids supporting data centres
✳️ Grid infrastructure metals - transformers, cabling, substations
Copper becomes a keystone metal as data centres are copper-intensive and power grids require massive rewiring and expansion. Aluminium and steel are also critical to meeting that infrastructure demand.
"Australia should be a key beneficiary of the AI-linked commodity boom. This translates into a demand-driven terms of trade (ToT) shock for the country, with large FX spillovers that pose upside risks to our forecasts," says Farmakis.
🎯 GBP/AUD year-ahead forecast: Consensus targets from our survey of over 30 investment bank projections. Request your copy.
Driving the demand are big AI hyperscalers, technology companies that have massively increased their capex spending for the year, to the tune of $650BN.
Meta said its AI spend could double from last year to as much as $135 billion. Alphabet said this week capex spend will be in the range of $175BN to $185BN in 2026. Amazon overnight reported it looks to make $200BN in capex in 2026, about $50BN more than expected.
Australia has an abundance of industrial metals, which, when exported, are a major earner of foreign currency.
That is why the Australian dollar is known as a commodity currency: when commodity prices rise, Australia's earning potential rises, which creates demand for the Aussie.
"Having been a standout beneficiary of the China-fuelled commodity supercycle that ended 10 years ago, the natural question is whether the AUD is at the cusp of another such cycle," says Farmakis.
The Aussie dollar has been trending higher against the U.S. dollar for a year now, but the advance titled higher in November as AUD/USD surged from 0.6421 to the cusp of 0.71. The Pound-Australian dollar exchange rate has in that time fallen from 2.10 to 1.9473.
"Gains to date are in line with improvements in terms of trade, the outlook for hedging flows has brightened and positioning is less crowded than meets the eye," says Farmakis.
"We argue that recent AUD gains are in line with conservative estimates of the FX pass-through from terms of trade gains. This, in turn, means that more upside potential is in store should the rally in metals extend," he adds.
🎯 GBP/AUD year-ahead forecast: Consensus targets from our survey of over 30 investment bank projections. Request your copy.
