by Chris Becker
The bears are waking! Shane Oliver at AMP is out this morning doubling down on his bets the Aussie dollar is heading into the low 60’s region after yesterdays ‘shocking’ GDP print.
More at SMH:
The local currency has been sliding steadily for a year now, a trend that accelerated this year as China’s slowing growth hit key Australian exports such as iron ore and coal.
“It’s on its way to 60 cents,” AMP chief economist Shane Oliver said. “The Aussie is a volatile currency but the broader trend is downwards. We’ve got to US70 cents earlier than we thought, and it’s got a lot further to go.”
“The falling dollar is largely in response to concerns about China,” Mr Oliver said.
“Commodity prices are down, global growth is soft and locally we’ve got this problem that non-mining economic activity has picked up but not enough to offset the slump in mining activity. These problems will be with us for years to come.”
Mr Oliver said he expects the dollar to reach US68¢ by the end of the year and slide to US60¢ throughout 2016.
As a reminder at the start of the year, AMP had forecast the AUDUSD to only fall to 75 cents, getting the macro partially right but the magnitude and cross calls on Yen and Euro very wrong:
The downtrend in the $A is likely to continue as the $US trends up and reflecting the long term downtrend in commodity prices and Australia’s relatively high cost base. Expect a fall to around $US0.75. However, the $A is likely to be little changed against the Yen and Euro
Even still, a conservative and near on the money forecast for mind although the catalyst for further falls maybe the Fed tightening rates before the RBA has to cut them again, with March next year the steady bet on the latter according to futures.
The ever cheerful Paul Bloxham at HSBC thinks the falling dollar will continue to help the RBA and stop further interest rate cuts:
“The Aussie dollar will continue to do more of the work for the RBA and it won’t be necessary for them to cut interest rates to continue to support this rebalancing of growth in the economy,” said Paul Bloxham, chief economist for Australia at HSBC Holdings in Sydney. Bloxham, a former RBA economist, reckons the central bank will be on hold over the next year.
That may be true but this is like walking a tightrope over a volcano – too low and a current account crisis looms. The RBA could have reduced the risk years ago by getting the AUD down hard and fast before the commodity price slump that every sane market watcher saw coming up Broadway.