The Aus dollar (AUD) is forecast to decline yet further by analysts at Australia’s Westpac bank through the course of 2015.
The call comes at a time of aggressive central bank action which continues to shakes up currency markets with a full-blown currency war now in full swing.
Falls to 0.75 v US Dollar Predicted
The big question, as always, remains where the Australian currency is headed next.
Robert Rennie of Westpac Global Markets Strategy Group joins market consensus and calls for further depreciations in the currency:
“We remain of the view that the AUD has potential for further weakness to 0.7500. Price action over the RBA was hardly supportive of this view, though reaction to the PBoC was not all that upbeat. Simply put, AUD looks to be in a 0.7850/ 0.7900 to 0.7700 range.
“While crude prices have tried to bounce, metals are generally not responding here. The RBA clearly left the door open for another rate cut in March/ April and the Queensland election and talk of leadership challenge will not have helped business/ consumer sentiment here.
“So bottom line, we remain of the view that 0.7850/ 0.7900 is the top for the AUD.”
The Outlook for the Aussie
A busy week next week with ANZ job ads Monday, NAB business confidence on Tuesday, Westpac consumer confidence Wednesday and employment data Thursday.
The RBA’s reference this week to the view that the “rate of unemployment [will] peak a little higher than earlier expected” will increase the focus on employment next week with the usual caveats here.
“Business sentiment has failed to respond to the softer currency and chatter of rate cuts. So how will it respond to the mixed news of further weakness in the currency, an RBA rate cut and the Queensland election result?” asks Rennie.
The Currency War Introduces Volatility
The outlook for the AUD will be complicated by an unsettled global currency market environment.
Central banks around the world are locked in a fierce battle to push the value of their currencies lower in order to make their exports more attractive on the global market.
“On my count, I have 16 central banks cutting rates so far in 2015. That has to go down as a record?” says Rennie.
The Westpac analyst goes on to point out:
- The Swiss got the ball rolling on Jan 15 (though to be fair, they were pipped by Uzbekistan and Romania).
- They were joined on the same day by surprise moves from the RBI and Egypt.
- Both Peru and Turkey cut ahead of the shock BoC move on Jan 21.
- The ECB’s QE program came the day after.
- Pakistan, Albania and Russia cut the same week then the Monetary Authority of Singapore’s unscheduled easing was delivered Jan 28.
- Denmark managed to squeak in 3 cuts in the last two weeks of January.
- So far in February, we have seen both the RBA and PBoC cut rates.