Iron ore, the RBA, a slowing growth profile in Australia, a hole in Treasurer hockey’s budget, Chinese bad loans and slowing growth have all combined this week to knock the Aussie back to an overnight low of 0.8598.
It’s back at 0.8610 now and the NAB strategy team says that on the day “Continued weakness in iron prices remains front-of-mind, with another 2.2% knocked off the price yesterday. Gold is down by 1.2% this morning, which should further take the shine off the AUD.”
But how low can it actually go?
The RBA has said mid-80’s but increasingly, investment banks and other forecasters are saying 80 cents seems about right given the crash in the terms of trade and in particular iron ore.
This week, Credit Suisse made a strong case for rates in Australia to fall to 1.5% – that’s another 100 points and would kick the legs out from under the Aussie dollar interest rate pick up which is so much a part of the Aussie’s strength since 2009.
From where I sit, somewhere near 80 cents seems fair medium term – I’m short Aussie as a lifestyle option. The ride won’t be linear but we know the direction.