The NAB says the downdraft in the Aussie dollar is likely over

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  • The Australian dollar has been hosed since 2011, losing over 36% against the greenback. It fell by 10% alone in 2018.
  • The inability for the AUD/USD to spend much time below the 70 cent level makes the NAB’s FX strategy team confident the downdraft in the Aussie is probably over.
  • It sees it being a ‘0.70-75 cent’ currency for many months to come. Beyond that, it sees it climbing to 79 cents by the end of 2020.

The Australian dollar was hosed in 2018, especially against the greenback.

It tumbled close to 10%, extending its fall from the post-float peak of 1.1080 set in 2011 to over 36%.

Many suspect the downdraft in the Aussie will continue this year, seeing it spend a considerable period of time below the 70 US cent level.

But not the National Australia Bank’s FX Strategy team.

It see the selloff in the Aussie as being over, predicting that previous weakness will begin to reverse in the latter parts of the year.

The inability for the AUD/USD to spend a prolonged period below the .7000 level, including earlier this year when it briefly plunged to the lowest level in a decade before rebounding just as quickly, is one factor underpinning that view.

“[The] AUD/USD has traded convincingly below 0.7000 for the third time inside five years and each time failed to spend very much time there,” the NAB says.

“This leaves us as comfortable as we can be that AUD/USD will remain for the most part a ‘0.70-75 cent’ currency for many months to come.”


In the near-term, the NAB’s fortunes will likely be determined by a slew of risk events, be they data or geopolitical in nature.

“[We expect the] AUD to be governed to a large extent by what is hefty upcoming calendar of domestic and international event risk,” it says.

“On the latter, the progress or otherwise on Sino-US trade talks when Vice Premier Liu He visits Washington at month-end is the most obvious one. How long the US government shutdown persists and how this plays for US economic and market sentiment is also important.

“Domestically, Thursday’s labour force survey and then the Q4 CPI numbers on 30th January will be important as we head toward the RBA’s first meeting of the year on February 5th and updated forecasts in the SoMP on the 8th.

“If CPI in particular is very soft and the RBA knocks down its growth forecast more than trivially, AUD will suffer. The counter would be very positive news on Sino-US trade.”

While each has the potential to generate short-term volatility in the Aussie, over the medium to longer term, the NAB believes the Aussie will head higher, forecasting the AUD/USD will trade at .7500 by the close of 2019 before pushing back to .7900 by the end of 2020.

Those views are premised on renewed weakening in the greenback, better risk sentiment, especially towards emerging markets, and no RBA rate cuts over the forecast horizon.

The AUD/USD currently trades at .7136.

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