Many people were surprised with the change in view from the RBA regarding the valuation of the Australian dollar. I am surprised that so many people were surprised.

For some time now, there have been clear signs that the global economy is on the mend, the domestic economy is transitioning towards non-mining growth and the hoopla surrounding a stronger US dollar as the Federal Reserve starts its rate hiking cycle and the commodity price cycle is petering out.

The RBA index of commodity prices slumped to a low of 79.5 index points (in Australian dollar terms) in April. This was a hefty 37 per cent fall from the 2011 high and was a reason why the RBA was cutting interest rates and the economy was generally sluggish.

Going forward to the index of commodity prices in July, and the level is still 79.5 points. In other words the level of the Australian dollar is cushioning any swings in commodity prices and on any reasonable assessment is somewhere near fair value. It might even be under valued given the run of slightly better news in recent tines (retail trade, housing, employment).

A few months ago, I swung to a bullish call on the Aussie dollar. I was clearly premature to make this call and the trade has been costly. But the evidence is rapidly building that the Aussie dollar has fallen far enough and my bet is on the AUD hitting 0.80 before it hits 0.70.