A few comments today reflect a growing skepticism that the sell-side (and MB) have got their expectations of a weakening Australian dollar wrong. And today the battler is looking like it wants to challenge its 2014 high:
I’ll do a five drivers update tomorrow but here are a few points about why I remain comfortable that the falls will continue over time:
- currency markets do not trend gently, they spike and crash. The AUD has performed nicely this year, and may well head up again from here, but the bigger picture remains down. Remember that the currency is still down some 11% in the past two years;
- interest rate cuts will resume as the iron ore crisis gathers pace;
- the capex cliff has barely begun;
- the housing rally has seen its best days;
- the ASX will add to weakness as profit growth stops;
- economic growth will fade to rates below other developed economies unless the dollar falls.
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In short, not falling ensures falling, only a bit later. The main question you might ask yourself is why is the RBA is happy to let economic weakness deliver a lower dollar when it could engineer one right it now via sensible policy innovation?
