The IMF released its country report on Australia overnight in which it looked at all aspects of the economy.
It’s actually a glowing report card but the IMF shares the same concerns about growth that the RBA does, noting:
“With GDP growth below trend and the investment phase of the mining boom having passed its peak and beginning to decline, a key issue is how Australia can manage the mining-production/export phase and encourage broader-based growth.”
The IMF says that part of that transition and this necessary adjustment in the economy is that the Aussie dollar needs to fall from 89 cents, when the report was written down toward the 80c region noting that the currency is, “is 5-10 percent above the level predicted by Australia-specific factors from a medium-term perspective.”
The IMF notes that the Aussie dollar has been a safe harbour over the past few years with the Aussie strength sourced in “substantial capital inflows to fund the mining sector investment, the gap between domestic and foreign interest rates, and portfolio allocation towards Australian dollar assets by foreign institutional investors.”
The big risk to the current strength, and the one that most forecasters who expect the Aussie dollar to fall over the course of 2014 identify, is likely to come from the Fed Taper. The IMF says that this fall will “supporting the transition of the economy towards more balanced growth.”
The IMF also notes that the Abbott Government’s move toward fiscal austerity will also help the Aussie dollar fall and aid the national economy.
Disclaimer: Greg McKenna is an active Currency trader who has continued to fight the Aussie’s recent strength because he agrees with the IMF and RBA and sits short AUDUSD this morning.