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.
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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.
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….