According to the SMH:
Forecasters are more divided on the outlook for Australia’s dollar than any other major currency as they weigh a boost from a recovery in China against a looming reduction in US monetary stimulus, a Bloomberg has found. The gap between the highest and lowest estimates for the Aussie through mid-2014 is the widest relative to the mean among 16 Group-of-10 currency pairs Bloomberg tracks, ranging between a rally to US dollar parity and a slump to 80 US cents. After falling to a three-year nadir of 88.48 US cents in August, the currency has rebounded as reports showed an economic resurgence in China. It’s currently trading at 93.13 US cents. The bears say the gains should reverse as the Federal Reserve reduces the $US85 billion it pumps into the economy each month early next year, money that weighed on America’s currency by boosting the supply of greenbacks. ‘‘There are definitely diverging forces on the Aussie dollar,’’ says Mitul Kotecha, the head of foreign-exchange strategy at Credit Agricole. ‘‘There are concerns over Federal Reserve tapering,’’ though ‘‘I do think that the Aussie is one of the better-placed currencies to withstand that.’’
This is short sighted stuff. China is at its growth peak now and will likely slow going into next year. As I wrote in my recent “five drivers” piece:
On driver two – global, local and Chinese growth – I would describe where we’re at as the “peak is in”. Although global growth may accelerate next year, Chinese growth is going to slow over the next six months. The evidence for this is declining lending:
And the emptying fiscal stimulus pipeline:
The point made about tapering doubts is fair enough but on balance China is more likely to weigh on the dollar in the months ahead. The Plenum was also too vague to offer any enduring support for arguments either way.
As monetary and fiscal tightening bights in China it will weigh on the dollar. Whether authorities respond with another round of loosening same I wouldn’t rule out!
A slowing China and accelerating US, with modest tapering in Q1/2, would be a nice combination for a lower Aussie, although that’s hopium for now.
