The NAB downgraded its forecast for the Aussie to 75 cents today after poor results from the bank’s business survey. Normally this wouldn’t be enough to get the market moving but such is the way the Aussie dollar trades that when the worm of sentiment turns, well, the worm turns.
The Aussie dollar at 0.8235 US is the lowest level since June 2010 and at a real risk of crashing to the May/June 2010 low of 0.8060. Looking a bit further out in time the 75 cent region comes right into the frame.
But perhaps the biggest weight on the Aussie is the recognition that rates in Australia are going to fall, or at least have a very high probability of doing so, in 2015.
A 0.5 percentage point drop to a 2% official cash rate in 2015 is becoming consensus.
The risk for the dollar is that one of the main planks of support for the Aussie in a post GFC world – that being relatively high interest rates – is being taken away.
You can see this potential in the AUD/JPY (Aussie Yen) price which could fall from current levels around 99.50 all the way to 98.00 perhaps even 96.00 as carry traders unwind positions.
The currency is not a football team. It’s a good thing the Aussie is losing ground. That’s what it’s supposed to do when the economy needs it. It’s one of the reasons Australia has had 24 years without a recession.
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