Goldman Sachs is out with a new report forecasting a fall in the Australian Dollar to around $US0.85 over the coming year on account of the weakening economy, ongoing falls in the terms-of-trade, and a pick-up in US growth:
Relative growth dynamics between Australia and the US appear to be shifting in favour of the USD. Over the past month or so, evidence has emerged that the Australian economy slowed sharply at the end of Q1…
The RBA continues to send the message that rates are on hold for an extended period, but in the May Board Minutes our Australia economist Tim Toohey and team sensed a slightly more cautious tone in some respects… If the activity/survey data continue to soften – consumer confidence fell sharply in May, commodity prices continue to fall, and the fiscal drag intensifies, as we expect – a rate cut as early as July is still likely…
Chinese infrastructure spending has yet to generate a meaningful pickup in activity. The fixed asset investment data do show that fiscal stimulus is occurring; however, this seems to be offset by weaker-than-expected housing data. This presents a mixed bag for Australian assets…
Once fundamentals are able to dominate, we expect the AUD to weaken… On the basis of our assumptions for relative terms of trade and interest rate differentials, it points to a notable depreciation of the AUD vs the USD down to the mid- 0.80’s.
All I will add is that a fall in the local currency could not come quickly enough and will play a crucial role in the economy’s rebalancing as Australia goes off the mining investment cliff from 2015.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
