Dollar tipped to stay south of 90¢ and fall further
The currency last traded at US89.01¢ after sliding last week to as low as US88.93¢.
Projected price swings in the Aussie have climbed as a slump in business sentiment and weaker housing construction buoy prospects for another rate cut from the Reserve Bank this year coinciding with bets the Federal Reserve will start trimming bond purchases that have supported assets globally.
The RBA has indicated the Australian dollar remains historically high even after dropping 15.5 per cent against the US dollar this year.
"The Aussie will tend not to benefit when volatility rises," said Todd Elmer, a Singapore-based strategist at Citigroup. "Interest rates are lower, the RBA clearly wants to see a weaker Aussie and growth prospects are relatively poor.
"I highly doubt you'll see Aussie buying on that basis," said Mr Elmer, who sees the local dollar dropping towards US85¢ within the next three months.
The Australian dollar has fallen 11 per cent this year against major peers, the worst performer among 10 developed-nation currencies tracked by Bloomberg. It slid past US90¢ on July 12 for the first time in almost three years and touched US88.48¢ on August 5.
The currency "had declined since the previous meeting, though it remained high by historical standards", according to the minutes of the Reserve's August board meeting.
A poll of currency analysts places a range from US82¢ to $US1.02 in their estimates for the Australian dollar's year-end level, with the median projection being for US89¢.
The RBA "is probably happier to tolerate a bit of easing of monetary conditions by the currency", said Jeremy Stretch, the London-based head of currency strategy at Canadian Imperial Bank of Commerce. "That leaves us of the opinion that the Aussie remains relatively vulnerable."
Mr Stretch sees the currency dropping towards US85¢ in the next six months.
Frequently Asked Questions about this Article…
The article reports the AUD last traded around US89.01¢ after sliding as low as US88.93¢. It fell past US90¢ on July 12 and touched US88.48¢ on August 5, reflecting a notable downward move this year.
Traders are pricing in more downside because projected AUD price swings have risen amid a slump in business sentiment, weaker housing construction, expectations the RBA may cut rates again, and bets the US Federal Reserve will start trimming bond purchases that have supported global assets.
The Reserve Bank of Australia (RBA) has indicated the AUD remains historically high even after a sharp fall this year. RBA minutes noted the currency had declined since the previous meeting but still stood high by historical standards.
A poll of currency analysts in the article showed year-end estimates ranging from US82¢ to US$1.02, with a median projection of about US89¢. Citigroup strategist Todd Elmer sees the AUD dropping toward US85¢ within three months, and CIBC’s Jeremy Stretch expects a move toward US85¢ in the next six months.
The AUD has been weak—down about 11% this year against major peers and was the worst performer among 10 developed-nation currencies tracked by Bloomberg. Versus the US dollar specifically, the article notes a roughly 15.5% drop this year.
Strategists in the article point to rising market volatility, lower domestic interest rates, the RBA’s apparent tolerance for a weaker currency, and relatively poor growth prospects as reasons the Aussie could be more vulnerable to further declines.
The article says expectations that the Federal Reserve will start trimming bond purchases — a move that has supported assets globally — are contributing to projected price swings in the AUD and are a factor traders are watching when pricing further downside for the currency.
Everyday investors should monitor RBA commentary and rate decisions, business sentiment and housing construction data in Australia, and signals from the US Federal Reserve about bond purchases. These factors are cited in the article as key drivers likely to influence the AUD’s path around the US85–90¢ area mentioned by analysts.
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