After the poor outcome of the NAB Business survey today, with commodity prices pointing lower, and with a changed forecast to rate cuts in 2015 the NAB’s currency strategy team has downgraded their Aussie dollar forecast against the US dollar to 75 cents in 2016.
This downgrade of 3 cents in 2 years may seems esoteric and remote from current pricing but the NAB has changed its forecasts across the board expecting 80 cents by June 2015.
The NAB Team said that they, “expect the terms of trade decline to have the most impact over the coming year, helped ably by falling Australian interest rates that come off the back of policy rate cuts. The delay to the RBA hiking cycle will prevent AUD from finding much fundamental support until late 2016.”
Add to that a Fed which has ended it QE program and is about to embark on a tightening cycle, and the NAB says, “This monetary policy divergence will keep the USD rallying through to mid- to late-2016, by which point the BoJ and ECB should be starting to pare back on their respective easing programs. We expect the USD to come off its peaks in 2017.”
Interestingly though the NAB offers a chart of the relationship between the AUDUSD and the terms of trade and also notes that, “Keep in mind that the AUD/USD will be doing much of the heavy lifting in terms of getting the AUD TWI lower.”
The chart suggests the Aussie could currently fall further outside their forecast horizon. Could we soon be seeing forecasts of the Aussie dollar heading to 70 cents or even lower? The NAB’s terms of trade forecasts suggests this is more than a remote possibility.
That would be great news for the economy.