Australian dollar forecasts are built on hope and not much else

See the latest Australian dollar analysis here:

Macro Afternoon

The winter of discontent is here as the Australia dollar faces more downgrades as economists and crystal ball gazers re-evaluate the Pacific Peso in the wake of the disastrous Omicron outbreak. The AFR’s quareterly surevey is still showing some upside delusion across the board, with most thinking the Aussie will get to 73C by mid year, although this is down from 74C in the last survey.

More:

Economists have downgraded their medium-term forecasts for the Australian dollar in the expectation that the US Federal Reserve will raise interest rates well ahead of the Reserve Bank even as the omicron variant’s disruption keeps financial markets and central banks on edge.

On the longer horizon, the Australian dollar is expected to rise to US75¢ by the end of 2022, with a wide range of forecasts. Three economists predict the currency will skid as low as 67¢ by December, and the same number see it rising to 80¢.

One challenge the economists have had to grapple with is that the Australian dollar has barely reacted to the broad price surge in energy commodities over the past six months. Historically, the local unit has moved in lockstep with export prices.

“The $A is one of the great mysteries of 2021 – why hasn’t the currency responded to rising export prices in a manner that it did in the past?” said Warren Hogan, economist at Judo Bank.

Not really – its all about the correlation with iron ore – which plummeted 27% throughout 2021 alongside the Aussie:

 

You must call economics the confidence science, because there’s only upside even though the Omicron outbreak is halting economic activity across the nation – and will only get worse in the weeks ahead. But they’re right about the Fed and how it will determine the trajectory of the Pacific Peso, not the wonks in Martin Place:

Economists and the Reserve Bank are confident soaring COVID-19 cases will not derail the economy even as new daily infections in NSW and Victoria saw another spike of more than 37,000 amid rising numbers in hospital.

“If the RBA does not hike rates and the US Fed does commence a tightening cycle, there is the prospect of currency weakness, which could see the Australian dollar break below US70¢ over the first half of 2022,” said Mr Hogan.

Maybe even the first quarter….

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Comments

  1. call me ArtieMEMBER

    Just received an email newsletter from my FX broker suggesting short-term increased strength for the AUD against USD. The rationale being cooling of expectations for the Fed to raise rates next month or the one after.
    After that, Well, if inflation continues to surge in the USA the Fed will have to act, USD up and AUD down.
    But I would not short the Aussie right now unless prepared to hodl through a possible upturn for a few months
    Artie

    • Upturn? It’s been in a 3% upturn for the last month already. These pathetic finance guys will say anything to keep their permabull fantasy alive. It’s really killing me…….and the real economy.

  2. Michael JohnsonMEMBER

    Terms of trade are very strong.
    Commods are strong.
    Fed will stay way behind curve.
    USA printing like lunatics.
    Sure AUD might trade lower but i certainly wouldnt be cocky about it.
    Could easily push to 80 cents.
    Beware.