- AUD hits new 29-month high

- But upside could soon stall says Commerzbank

- 2021 likely to see strong advance

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GBP/AUD spot rate at time of writing: 1.7977Bank transfer rate (indicative guide): 1.7346-1.7472FX specialist providers (indicative guide): 1.7553-1.7849More information on FX specialist rates hereThe Australian Dollar has touched a fresh 29-month high against the U.S. Dollar and is maintains a steady trend of appreciation against the British Pound, but beware a near-term setback warns a leading European lender and investment bank.

Analysts at Commerzbank have on Wednesday told clients they see the Australian currency potentially coming under pressure over the course of the remainder of 2020 and snap a multi-month winning streak, but 2021 would see a more sustained strengthening.

The call for 2021 outperformance by the Australian Dollar is a widely-held view amongst the analyst community, which continues to link Australian Dollar performance to the performance of the global economy. We reported last week that Aussie lender NAB are forecasting a pattern similar to that of Commerzbank, where near-term weakness gives way to longer-term strength.

Despite the importance of the global picture for the Australian currency, domestic drivers can't be ignored near-term, according to FX Analyst You-Na Park-Heger at Commerzbank.

"For the AUD, the dovish RBA is a risk in the short term," says the analyst.

The Reserve Bank of Australia (RBA) in November lowered interest rates to 0.10% and introduced a conventional quantitative easing programme where it announced it would buy A$100BN worth of Australian government bonds in order to increase support to the economy.

"The lower interest rates and our plan to buy $100 billion of government bonds over the next six months will help people get jobs and support the recovery of the Australian economy," said RBA Governor Philip Lowe in a statement released at the time of the November decision.

The mention of jobs is key to why the RBA might remain cautious in its decision making, despite expectations for a pick up in economic growth over coming weeks.

"What the RBA is concerned about is the labor market. Here it sees only a slow recovery, with the result that wages are rising only slowly and consumer price inflation is also remaining low," says Park-Heger.

Above: The Aus Dollar is at multi-month highs against the U.S. Dollar.

Owing to elevated global uncertainty with regards to the covid-19 pandemic, the RBA is likely to remain on alert. Rising infections globally and a view that new vaccines will only take effect a few months into 2021 should keep near-term uncertainty high.

"In view of the still high number of corona infections worldwide, which will probably continue to weigh on the global economy for the time being, we see potential for a downward correction in AUD/USD in the short term," says Park-Heger.

The call comes as the Australian Dollar-to-U.S. Dollar exchange rate trades at fresh multi-year highs at 0.7469, the last time the currency commanded such strength was in July 2018.

The Australian currency is also trending higher against the British Pound, although hopes for a post-Brexit trade deal being reached between the EU and UK are limiting the Aussie Dollar's strength against the UK currency for now. The Pound-to-Australian Dollar exchange rate is nevertheless engaged in a trend of depreciation this November and is currently being quoted at 1.7375.

A further potential barrier to further Aussie Dollar gains is the deterioration in ties with China, which has resulted in the imposition of import taxes and import bans on select Australian exports.

But 2021 could well be the year of significant Aussie Dollar gains.

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Commerzbank expect the Australian economy to continue to recover in the coming quarters, especially if vaccinations are widely available and the pandemic can be overcome.

This should be the case from the second quarter of 2021 onwards and after a decline of 3.1% this year, Commerzbank's economists expect growth of 3.5% in 2021.

The Australian Dollar-U.S. Dollar exchange rate is forecast at 0.71 by March 2021 ahead of 0.72 by the end of June 2021 and 0.73 by year-end.

While they offer no forecasts for GBP/AUD, the Euro-to-Australian Dollar exchange rate (EUR/AUD) is forecast at 1.70 by the end of March 2021, 1.69 by the end of June 2021 and 1.70 by year-end.