HSBC: Australian dollar to tumble

See the latest Australian dollar analysis here:

Macro Afternoon

From The Australian:

THE soaring Australian dollar is poised to tumble as lower interest rates, an escalating US fiscal crisis, and more Federal Reserve asset purchases conspire to push the high-yielding currency significantly below parity against the greenback.

That’s according to strategists at investment bank HSBC, who say the so-called Aussie may sink to as low as $US0.9500 by the end of the year as those factors erode its spread advantage in the coming months. An anaemic growth outlook for the world’s largest economy will in particular hit Australia hard because of the impact of that on Asian nations that its resource-rich economy is closely tied to, the strategists say.

“The Australian dollar has traditionally been one of the worst performers under a U.S. slowdown, and with the fiscal cliff fast approaching we expect a new risk-off movement,” said David Bloom, head of FX research at HSBC. “This will have damaging repercussions for the Australian dollar.”

Not sure the HSBC economist in Australia would agree!

Here is the page from the note on the AUD:

David Llewellyn-Smith

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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  1. Has to fall,….but likely after Q3.
    I don’t think you could short the a$ until Q3 given previous stimulus effects.

  2. pretty crap analysis from HSBC……”conspire to push the high-yielding currency significantly below parity against the greenback.”

    why is the high yielding currency going to depreciate significantly against the low yielding currency? i wouldnt count on it just yet

  3. Fairly amateur analysis from the head of FX research at HSBC. One measly mention of China, as though Chinese demand isn’t the single most important determinant of the direction of the Aussie these days. Europe can evade its End of Days, the US can limp along, but if Chinese demand collapses the Aussie is going with it.

    Like others, I’m struggling with the assertion that QE3 will increase 10yr treasury yields. Moreover, the Aussie roared back last week when Europe pretended to fix itself and then, more importantly, when bad employment data signalled QE3 was a go. How anyone, never mind an FX strategist, could think QE3 would be bearish for the Aussie is beyond me.

    My view for now is that we need to sit tight for the FOMC meeting. Assuming QE3 happens, who knows where the Aussie will settle, but I’d say it’ll retest last month’s highs. From there the market’s attention will shift squarely to China and its elusive real stimulus.

  4. Sorry, I meant the A$ would run after Q3 is announced, then likely weaken away with china etc. Hence medium term it’s likely heading south, but not until after q3 has pushed it up.

  5. What a day- AUD just going up %-wise more than expected. Correlations have broken down. When foreign money leaves then we’ll see a drop. Until then even the bad news from China is inconsequential! AUD-S&P500 correlation is most important I see