AxiTrader chief market strategist Greg McKenna said he sees a continuation of the “economic and policy divergence theme…My base case is for the [Aussie to head into the [US71¢] region through time, on the back of desynchronisation of growth, a China slowdown, a domestic economy challenged by household caution, low wages growth, and high debt levels.
CBA chief currency strategist Richard Grace…will “now see a firm US dollar as the central theme for most of the remainder of 2018”
…AMP Capital chief economist Shane Oliver sees a prospects of the Aussie reaching US70¢ this year…
…BNY Mellon senior currency strategist Bill Dudley agrees, saying the local currency’s “year-to-date downtrend appears destined to remain intact that little bit longer”.
Long term readers will recall that Greg McKenna is an MB alumnus and helped build our “five drivers” model of fair AUD value. He is worth listening to.
This positive sentiment can be seen to be offset by the CBA turning AUD bearish given it is a dreadful AUD forecaster!
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Westpac is bearing up again today too:
The decline in the Australian dollar has provided some reprieve from tightening financial conditions centred on a higher BBSW, higher term rates and a modest increase in credit spreads.
The question to ask is whether the current level is evidence of a low, or if it is instead merely a pause for breath in a longer downtrend. We continue to argue the latter, believing that the Australian dollar will inevitably lose altitude to USD0.72 by March 2019, and thereafter test USD0.70 in the second half of 2019. This view comes as a consequence of our expectations for the US and commodity prices.
The data calendar is light, but we’ll keep an eye on auction clearance rates – as weakness in the housing sector is a key downside risk for the AUD
The AUD is likely to remain caught in the cross-fire of US trade policy for now. We could be less bearish on the outlook if there were strong domestic data to latch onto, but the data flow remains uninspiring from an RBA rate hike perspective, and risks around the housing market may also weigh. Favourable terms-of-trade have helped so far, but this channel seems to be steadying.
We expect the AUD to continue to trade defensively.
MB still has its target of 70 cents by year end and lower next year.
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David Llewellyn-Smith is the chief strategist at the MB Fund which is over-weight global equities that benefit from a weaker AUD. The first option is to use the MB Fund International Stocks Portfolio which is always 100% long as a part of your own asset allocation mix. The second option is to use an MB Fund tactical allocation in which we choose the asset mix for you, including exclusively international stocks, but with bonds and other assets as well to ensure a more conservative mix.
The recent performance of both is below:
If these themes interest you then contact us below.
The information on this blog contains general information and does not take into account your personal objectives, financial situation or needs. Past performance is not an indication of future performance.
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.
