$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 the year and remain at US95¢ by the end of next year.
Deutsche Bank currency strategist John Horner forecast the Australian dollar to remain around 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 article cites several reasons: a weak National Australia Bank survey showing soft business conditions, a stronger US dollar on reports the Federal Reserve may wind back its US$85 billion-a-month bond‑buying program, the Reserve Bank of Australia's recent cash rate cut (reducing Australia's yield advantage), slower growth in China and weak commodity prices, plus selling of Australian government debt by some overseas investors.
According to the article, the Australian dollar fell to an 11‑month low of US99.67¢ before briefly lifting above parity after Chinese industrial output data, and was trading around US99.99¢ late on Monday.
Forecasts in the article vary: Barclays lowered its 12‑month projection from US95¢ to US93¢; HSBC expects the dollar to slide to US95¢ by year‑end and stay at US95¢ by the end of next year; Deutsche Bank expects it to remain around US100¢ by year‑end; Rochford Capital expects short‑term weakness to about US98.5–98.7¢ but potential strength to about US1.06 under certain political or US labour market changes.
The article notes the US dollar strengthened amid reports the Fed plans to wind back its bond‑buying program, which puts pressure on the AUD. Strategists say moves by the Fed away from zero interest rate policies and stimulus could weigh on the Australian dollar, especially if US labour market indicators prompt the Fed to unwind stimulus.
China matters because it’s a major buyer of Australian commodities. The article mentions a lift in the AUD after Chinese April industrial output rose 9.3% year‑on‑year, but HSBC warned that a slowing Chinese economy could reduce the benefit to Australia from the commodity cycle and weigh on the currency.
Yes. HSBC highlighted that selling down of Australian government debt by Japanese investors, combined with weak commodity prices and a large upcoming government bond redemption, could put downward pressure on the Australian dollar.
The article reports mixed views: some strategists expect further short‑term weakness (into the high‑US98¢s) while others see the risk of a modest fall through the remainder of the year. A number of factors — Fed tapering, RBA rate settings, China and commodity prices — will influence whether this becomes a longer‑term trend.
Based on the article, investors should be aware that the AUD faces pressure from global and domestic forces (US Fed policy, RBA rate cuts, China slowdown, commodity prices and bond flows). That means currency risk can affect returns on offshore investments and exporters; everyday investors may want to monitor these drivers and consider hedging or diversification strategies while noting the article does not provide personal financial advice.
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