Markets: Dollar drop over?

Westpac's chief economist thinks the Aussie dollar has hit its trough, and an August rate cut is still on the cards.

Bill Evans says the Australian dollar has reached its trough. Westpac’s chief economist expects the Aussie dollar to “go back up again” against the US dollar, as “bad news has already been priced into” the currency. 

“The idea the dollar goes to 80 [US cents] is unlikely,” Evans told Markets Spectator.

“We’ve had a turning point.”

At 0818 AEST the Australian dollar was at 92.32 US cents, down from 92.37 US cents yesterday, according to Bloomberg data. The currency had fallen 14 per cent between April 11, when it was at $US1.0545, and July 12, when it was at 90.49 US cents, over fears of a potential slump in commodity demand and prices due to a slowing Chinese economy.

“The commodity story still looks tentative,” Evans says.

“I think the dollar is at fair value.”

Evans does not believe the Australian dollar will reach parity against the US dollar in coming months and expects an August rate cut by the Reserve Bank of Australia. One of the concerns the RBA has over the economy is the value of the Aussie dollar against the US currency. Evans says the central bank would like to see the Australian dollar lower against the US in order to boost competitiveness in non-mining sectors.

If the Australian dollar was trading at four to five US cents below its current level, Evans says he would not expect the Reserve Bank to cut its benchmark cash rate from the current record low of 2.75 per cent.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles