'Between a rock and a hard place': ANZ says the Aussie dollar selloff isn't over yet

Craig Prentis /Allsport
  • The Australian dollar has been hammered this year, losing 13% against the US dollar since late January.
  • ANZ Bank says there’s likely to be further falls ahead, forecasting the AUD/USD will hit .6700 in the June quarter next year.
  • It says the Aussie is “stuck between a rock and a hard place” for the moment.

The Australian dollar is back under pressure, coming within a whisker of hitting fresh multi-year lows against the greenback late on Wednesday.

Investing.comAUD/USD Daily Chart

Whether it breaks below this level in the near-term or not, ANZ Bank’s FX strategy team says the Aussie is likely to go lower, even with it now sitting at cheap levels, according to its fair value model.

In ANZ’s opinion, the Aussie is currently in a bind, a scenario it doesn’t see changing in the short to medium term.

“Clearly, the trajectory of the US economy is a crucial input,” says Daniel Been and Nathanael Hartley, members of ANZ’s currency research team.

“Having the US economy at the centre of the AUD’s fate confirms our downside bias and puts the AUD between a rock and a hard place.”

As they explain, the Aussie is unlikely to benefit no matter what happens to the US economy, be it continued strong growth or a reversal of recent trends.

“A weaker US economy likely creates issues for the risk side of the equation, however continued strength in US economy puts pressure on the AUD from the perspective of rates,” says Been and Hartley.

If US economic growth rolls over, it will impact risk sentiment. And if the US economy continues to fire on all cylinders, it will weigh on the Aussie due to widening rate rate differentials between the US and Australia.

So where will this lose-lose scenario take the Aussie?

A bit lower, but not a lot, says Been and Hartley.

“With all of this in mind, we remain comfortable that this risk profile for the AUD remains to the downside,” they say.

“We are now forecasting a trough in the AUD/USD in the June quarter of 2019 at .6700, down from .7000 previously.”

That would represent a 5% drop from its current trading level of .7070.

ANZ has been bearish towards the Aussie for quite some time, and view that has proven to be correct so far.

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