$A tipped to stay under pressure
The Australian dollar fell to an 11-month low of US99.67¢, pushed down by a National Australia Bank survey of business conditions and confidence for April that pointed to weak activity across the economy.
The currency then briefly lifted above parity following the release of Chinese data showing that the country's April industrial output had risen 9.3 per cent year-on-year.
Late on Monday the dollar was trading at US99.99¢.
Currency strategists tipped the Australian dollar to remain under pressure, as the greenback continued to strengthen amid reports that the Federal Reserve was planning to wind back its $US85 billion-a-month bond-buying program.
Barclays' currency strategists Hamish Pepper and Nick Verdi lowered their 12-month projection for the Australian currency from US95¢ to US93¢, citing the country's lower yield advantage following the Reserve Bank's cash rate cut last week.
HSBC's Asia head of currency research Paul Mackel said the dollar had been "trading on fumes" for some time and "is still a very overvalued currency".
"There's been a rethink more recently on the outlook for the Australian dollar," Mr Mackel said.
"I think the market has come to realise that as China's economy is slowing, maybe the Australian economy is not going to be benefiting from the commodity story the way it has been in previous years."
HSBC said the selling down of Australian government debt by Japanese investors, together with weak commodity prices, could also weigh down the dollar before the largest Australian government bond redemption on record this month.
The bank forecasts the Australian dollar to slide to US95¢ by the end of this year and remain at US95¢ by the end of next year.
Deutsche Bank currency strategist John Horner forecast the Australian dollar to remain about US100¢ by the end of the year.
"While the price action on the [Australian dollar] is undeniably bad and further weakness may be seen in the short term, we don't see this as the start of a more significant move lower," Mr Horner said, adding that the shift down could take place in 2014 as the Federal Reserve moved away from its zero interest rate policies.
Rochford Capital currency strategist Thomas Averill said while he expected the dollar to sink to between US98.5¢ and US98.7¢ in the next few days, it would continue to remain supported as the broader risk environment had not turn overly negative.
He expected the dollar to struggle between now and September, but strengthen by up to $US1.06 if there was a change in government, unless US unemployment fell below 7 per cent and there were further indications the Federal Reserve was unwinding its stimulus programs.
Frequently Asked Questions about this Article…
The AUD has been under pressure because of weak domestic business conditions (a NAB survey pointed to soft activity), a stronger US dollar as the Federal Reserve signals winding back its $US85 billion-a-month bond‑buying program, and concerns about weaker commodity prices and reduced yield advantage after the RBA cash rate cut.
The article said the AUD fell to an 11‑month low of US99.67¢, briefly lifted above parity after stronger Chinese industrial data, and was trading around US99.99¢ late on Monday.
Barclays lowered its 12‑month AUD forecast from US95¢ to US93¢; HSBC forecast the AUD to slide to about US95¢ by the end of this year and remain there next year; Deutsche Bank expected the AUD to be roughly US100¢ by year‑end; and Rochford Capital saw near‑term weakness to about US98.5–98.7¢.
Positive Chinese data can lift the AUD—Chinese April industrial output rose 9.3% year‑on‑year and briefly pushed the dollar above parity—but HSBC warned that a slowing Chinese economy could reduce Australia’s benefit from the commodity cycle and weigh on the AUD over time.
Reports that the Fed might scale back its $US85 billion‑a‑month bond‑buying program have strengthened the US dollar, which in turn puts downward pressure on the AUD according to currency strategists cited in the article.
Yes. HSBC said selling of Australian government debt by Japanese investors, together with weak commodity prices and a major government bond redemption this month, could further weigh on the AUD.
Analysts in the article largely expect the AUD to remain under short‑term pressure and volatile: forecasts ranged from a near‑term dip to about US98.5–98.7¢ to continued struggle until September, though some see the weakness as potentially temporary rather than the start of a long‑term slide.
Rochford Capital’s strategist Thomas Averill said the AUD could strengthen to about US$1.06 if there was a change in government, although he noted that US labour market moves and any Fed unwinding of stimulus would also influence that outcome.
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