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…
Futures traders are betting the Aussie’s recent stability around US90¢ is ending. The article links the currency’s weakness to a slump in business sentiment, weaker housing construction, expectations the RBA may cut rates, and bets the US Federal Reserve will trim bond purchases that have supported global assets — all of which have pushed projected price swings and downside pressure on the Aussie.
According to the article, the Aussie last traded around US89.01¢ after sliding to about US88.93¢, and it touched US88.48¢ on August 5. It slipped past US90¢ on July 12 for the first time in almost three years. The RBA noted the currency has dropped about 15.5% against the US dollar this year, and Bloomberg data show it has fallen around 11% versus major peers — the weakest performance among 10 developed-nation currencies tracked.
The article cites Citigroup strategist Todd Elmer, who sees the Aussie dropping toward US85¢ within the next three months. Jeremy Stretch, head of currency strategy at CIBC, also expects the currency to head toward about US85¢ in the next six months. Those calls reflect the view that the currency remains vulnerable amid rising volatility and domestic weakness.
A poll of currency analysts mentioned in the article puts year-end estimates in a wide range from about US82¢ to US$1.02, with the median projection around US89¢.
The RBA has said the Australian dollar remains high by historical standards even after its recent decline. The minutes of the RBA’s August meeting noted the currency had declined since the previous meeting but was still high. Analysts quoted in the article say the RBA may be willing to tolerate some currency-driven easing of monetary conditions, which leaves the Aussie relatively vulnerable.
The article notes market bets that the Federal Reserve will start trimming bond purchases that have supported global assets. That potential reduction in global asset support, combined with domestic weakness and RBA easing prospects, is cited as a factor adding downside pressure and volatility to the Australian dollar.
The article says projected price swings for the Aussie have climbed. Citigroup’s Todd Elmer is quoted that the Aussie tends not to benefit when volatility rises, implying greater downside risk. For everyday investors, higher volatility means larger and faster moves in the exchange rate, which can affect returns on AUD-denominated assets or foreign-currency exposures.
Based on the article, everyday investors should keep an eye on business sentiment readings, housing construction data, RBA monetary policy decisions and minutes, and announcements or market moves related to US Federal Reserve bond-purchase policy — all of which have been linked to recent moves in the Aussie.
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