- The Australian dollar is falling again, moving back towards the lows struck earlier this month.
- ANZ Bank thinks the Aussie will break those lows in the coming weeks, forecasting the AUD/USD will fall to 70 cents.
- It says widening interest rate differentials to the United States, an unsupportive risk backdrop and trade tensions between the US and China trade will continue to erode the Aussie’s appeal.
After climbing off the mat last week, the Australian dollar has been under the pump in recent days, sliding back below the 73 cent level against the greenback, leaving it just above the multi-year low of 72 cents struck earlier in August.
Renewed jitters in emerging markets, renewed doubt over when and if the Reserve Bank of Australia (RBA) will be able to lift official interest rates and, more recently, concerns about trade tensions between the United States and China, has taken its toll on the Aussie.
Giulia Lavinia Specchia, FX Strategist at ANZ Bank, says there’s likely to be further declines ahead.
“The AUD looks like it can’t catch a break,” she says.
“Widening interest rate differentials vis-à-vis the USD, an unsupportive risk backdrop and the US-China trade tiff have pushed the AUD lower over the year.
“In our view, these stories will weigh on the medium term outlook. And we think the global risk/growth backdrop will increasingly challenge cyclical currencies like the AUD.
“The deceleration in Australia’s housing prices combined with ballooning household debt are risks to domestic growth and are more reasons to be cautious about the medium term direction of the AUD.”
As such, and despite signs that the US dollar rally is starting to stall, Specchia sees the AUD/USD falling to 70 cents “over the coming weeks”.
“The USD’s run higher seems to be moderating — as the growth divergence narrative is less of a driver — and this should remove a headwind for the AUD,” she says.
“However, while we watch the USD profile, we see the AUD falling to 0.70 over the coming weeks.”
The AUD/USD currently trades at .7263.
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