Via Bloomberg:
“What we’re seeing in the forex markets reflects a crisis of confidence in the ability of Australia’s political class to deliver sensible economic outcomes that ensure our future prosperity,” said Stephen Miller, an adviser at Grant Samuel Funds Management and former head of fixed income at BlackRock Investment Management Australia. “I can see the Aussie testing 70 U.S. cents at some stage before year’s end.”
…Miller is voicing the view of a growing pool of money managers who are becoming increasingly bearish on the Aussie as a power struggle once again disrupts the process of government. The currency was already under pressure due to the trade dispute between Australia’s largest trading partner China and the U.S., and a widening interest-rate differential in favor of the greenback.
…The Aussie will probably decline to around 71.25 cents as the crisis worsens and other macro factors weigh in, said Chris Manuell, a portfolio manager at Jamieson Coote Bonds in Melbourne. “We would anticipate one last leg lower into that region and be alert for a tradeable bounce around that area.”
As I noted this morning, it is a febrile forex environment for political risks to play out. Other emerging markets nations that have seen similar, such as Brazil, South Africa and Turkey, have all seen big currency crashes:
No doubt there will be a relief rally when a new PM emerges. But I don’t think it will matter who replaces Turnbull. The only play they have to repair the Coalition vote is to cut immigration in some measure to bring back in the One Nation vote. Otherwise the conservative separatist movement will become structural. That is fatal not just to the election but to the party.
It makes a lot more sense to have an attractive candidate do it than a potatoman, so that the candidate can bridge the liberal/conservative divide in the party support, but do it they must.
If so, the headline growth level will also fall away with house prices and the downside risks to the currency are obvious as the RBA is shoved towards easing.
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David Llewellyn-Smith is chief strategist at the MB Fund which is long US equities that will benefit from a falling Australian dollar so he is definitely talking his book (or ANZ is!). Below is the performance of the MB Fund since inception:
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