ANZ: 66c is coming for the Aussie dollar... eventually

Anatoliy Shabotenko of Ukraine competes in the Red Bull Cliff Diving World Series Qualifier at Riverside Oaks Golf Resort on February 4, 2012 in Sydney, Australia. (Photo by Ryan Pierse/Getty Images)

The ANZ has tweaked its forecasts for the Australian dollar, suggesting that while it’s still likely to fall to the mid-60 cent level, it will take far longer than previously anticipated.

“The strong, post-Brexit rally in the AUD has driven us to reassess our forecast trajectory,” said Daniel Been, head of FX strategy at ANZ. “While we continue to think that the fundamental grounds for a rally are not in place, market volatility has not provided the catalyst for weakness that we anticipated.”

“While we continue to think that the AUD will reach new lows in this cycle, we have pushed out the timing of the decline and expect the AUD to range-trade in the near term,” he adds.

Here are ANZ’s new AUD/USD forecasts, compared to those previously issued.

As was the case previously, the bank sees the AUD/USD falling to a fresh cyclical low of 66 US cents. However, this is expected to occur by the end of the March quarter of 2018, one year later than its previous forecasts.

It also expects that the recent strength in the Aussie will extend in the weeks ahead, forecasting that it will hit a high of 78 US cents in the current quarter before resuming its long grind lower.

“While our forecasts show a gradual depreciation from there, we expect that AUD will trade with some volatility in a USD0.70-0.78 range before breaking lower in the latter half of 2017,” says Been.

“We continue to think that the distribution of risks is to the downside and that this is simply a timing issue for our bearish view, rather than the beginning of a fresh cycle of strength in the AUD.”

From a fundamental perspective, Been remains confident that “the building blocks for a sustained rally in the AUD are not in place”.

“It is a reassessment of the liquidity environment, rather than a reassessment of the fundamental environment, that is driving our forecast change,” he says.

The AUD/USD currently trades at .7600.

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