MARKETS SPECTATOR: Dollar in the middle

There has been no halt to the Australian dollar's slide but one analyst says it's unlikely to drop to a level where it would greatly affect competitiveness.

The Australian dollar is continuing its inexorable slide. Down 8.1 per cent against the US dollar so far this month, today it fell 1.45 cents to $US0.9609 by the end of the trading day. The dollar was at $US0.9754 yesterday, according to Bloomberg data.

Nomura strategist Tim Rocks says the economic headwinds for the local economy have been “underestimated” by almost every commentator and analyst he has read. He thinks the Australian dollar will trade at between US85-90 cents. And that may not necessarily mean that Australia will become more competitive, says Rocks. The dollar would have to fall to 80 cents for that to happen, he says.

Commonwealth Bank currency strategist Joseph Capurso thinks the dollar could be trading above parity to its American counterpart. But he acknowledges the market seems more optimistic about the US economy and its currency compared to Australia and the Aussie, the world’s premier commodity currency.

Spot iron ore prices have slumped 23 per cent, or $US27 a tonne, since the start of the year. Today iron ore’s spot price was $US123 compared with $US160 at the beginning of 2013. The Reserve Bank will probably cut its benchmark cash rate to 2.50 per cent from 2.75 per cent this year, further dampening interest in the Australian dollar, says Capurso.

He doesn’t think the dollar will drop below US90 cents but could fall to US93 cents.