Markets: Australian dollar sentiment is very bearish

Watch out. The Australian dollar may fall lower much lower.

The currency, down 15 per cent since April, could drop as low as low as US cents 85, says Andrew Salter, the foreign exchange strategist at ANZ.

“Sentiment is bearish toward the currency,” Salter told Markets Spectator. “I wouldn’t be surprised if it remains there for awhile.”

He says the today’s drop in the Australian currency to its lowest level against the US dollar since September 2010, US cents 89.43, is a result of the contracting interest rate differential between Australian and the rest of the world, the greenback’s strength, capital flows into the pound, yen and US dollar as well as a fall in commodity prices.

But for the Australian currency to fall to US cents 85. Salter says China’s economic growth has to decline further, an August rate cut by the Reserve Bank of Australia is followed by the RBA stating it still has an “easing bias,” and US economic data reports have to continue to be positive.

ANZ’s forecast is for the Australian currency to be at US cents 88 by December. At 0930 AEST the currency was at US cents 89.48. Salter perceives “fair value” for the Australian dollar at US cents 90-91.