Australian Dollar outlook

Thursday, 13 September 2012 – Ozforex
Australian Dollar: The Australian dollar has remained supported in the mid 1.04’s and daringly undertook a challenge for 1.0500 as the primary funding vehicle for the euro-zone was given the all clear to partake in the Europe’s economic recovery. The market reaction was positive as investors took risk on board and closed out short positions with the Aussie rallying to highs marginally above $1.05 against the Greenback as a result. Settling back around similar levels to yesterday, the key focus today will be the outcome of the FOMC meeting in the US where many are keenly anticipating stimulus measure to be announced. If so this would have a positive effect on the Australian dollar as a result of the measures supporting global markets, as well as directly weakening the US Dollar as the underlying currency.

Feb 21, 2012 update:
Joseph Capurso and Richard Grace of the foreign exchange team at Commonwealth Bank of Australia have conceded that their recent forecasts have been wrong.

They did not foresee that the ongoing sovereign debt crisis in the EU would have so little of a negative effect on global growth and therefore the commodities-linked Australian dollar.

The strategists have now amended their forecast for the exchange rate from $US0.95 in June 2012 to $US1.08 until September, and $US1.10 in early 2013.
Source AFR

Feb 09 2012 Lateline ABC Transcript

TICKY FULLERTON, PRESENTER: The Australian dollar is set to remain a painful issue for large parts of the business community this year with all the signs so far indicating it will track higher rather than lower. So will there be any relief as 2012 unfolds?

Well in the third part of our week-long series, our experts tell us where they see the Aussie dollar heading this year.

MICHAEL BLYTHE, CHIEF ECONOMIST, CBA: Well our forecasts have the Aussie at parity with the US dollar at the end of 2012.

Now, the Aussie dollar’s performance has been one of the big surprises the last year or so. It’s been amazingly resilient given the global backdrop. In fact I’d just flown in from Mars and you’d told me the global story and asked for a currency forecast, I probably would have said about 70 cents.

Now, the Aussie’s not immune to what is going on. We think it will drift from around $1.07 today down towards that parity level at the end of 2012.

AUD/USD: 100 c

GERARD MINACK, CHIEF ECONOMIST, MORGAN STANLEY: I think it’ll be around 90 cents. The key driver of the currency is really global growth and commodity prices.

There are some other things that play a role, but that’s the big picture thing that drives it. And I think we’re going to see slower global growth, commodity prices come off, so I think the risks are the currency goes down, not up this year.

AUD/USD: 90 c

TIM HARCOURT, ECONOMICS PROFESSOR, UNSW: I’m picking at $1.07, just above parity.

I think it’s principally a story of the power proximity because China and India, Indonesia are demanding Australia’s resources, and for that reason I think the dollar will be strong and the rest of our fundamentals are closely tied to the emerging markets, where again, that’s where most of global growth’s gonna come from.

AUD/USD: 107 c

ALAN OSTER, CHIEF ECONOMIST, NAB: Well we think the Australian dollar where commodity prices are currently around will be good value at around about $1.01.

So we have the Australian dollar by the end of the year around parity. I think it’ll bounce up and down a bit in terms of weakness in essentially the US dollar because of quantitative easing being offset a little bit by further falls in commodity prices as we go through.

AUD/USD: 101 c

SCOTT HASLEM, CHIEF ECONOMIST, UBS: We’re looking for the Australian dollar to be around $1.05 against the US dollar at the end of the year.

In the near term, with the RBA lowering the cash rate and some more weakness coming through in the global economy, we do think the Australian dollar could lose some of its recent strength, maybe even head down towards parity again.

But again, over the course of the year with the global economy stabilising, looking a little bit better and the Australian economy looking a little bit better, we do expect the strong fundamentals of China growth, demand for triple-A-rated debt, which Australia has, is all gonna help the Australian dollar remain reasonably high.

AUD/USD: 105 c

TICKY FULLERTON: So the good news for exporters and import-competing businesses is that three of our four experts see the dollar falling this year.

The bad news is: not by much. Tomorrow night our experts will be turning their attention to a key indicator of the health of the economy, and that’s unemployment.

December 2011
As we approach year-end 2011 the Australian dollar is hovering around parity. So armed with the clarity of hindsight we re-visit our selected analysts forecasts from back in May 2011, some of their predictions are doing better than others… So far Matthew Sherwood from Perpetual and Nigel Stapledon, UNSW are looking the most on the money correctly predicting an AUDUSD rate of around 99 cents. But given the volatility of the AUD this year, with a month to go any one of them may still be in with a chance.

Source for following predictions: Australian Financial Review May 7-8, 2011

Commonwealth Bank currency strategist Richard Grace says the local dollar will get to $US1.12 by September driven by the terms of trade boom, and by increasing interest from foreign investors in diversifying into currencies other than the greenback.

National Australia Bank John Kyriakopoulos is slightly more cautious. Although after its recent surge he upped his short term forecasts by as much as 4 cents, he believes the local dollar will fall to $US1.02 by year end. He says the currency appears expensive at $US 1.10, based on measures such as the terms of trade and the current account.

ANZ Bank says its official Australian dollar year-end forecast is $US1.03. It sees the currency at par with the greenback until at least July 2012 and says weakness in the US dollar is likely to persist owing to America’s low interest rates, large fiscal hole and ailing housing market.

JPMorgan economics team local currency year-end forecast of $1.04. It believes the underlying fundamentals appear strong, and the dollar will hold above parity until the end of 2012, when the US Federal Reserve is likely to begin raising interest rates.

Citibank analysts say the Australian Dollar is overvalued by about 6 per cent. they believe that while the currency may go higher in the short term, it is difficult to make the case to long-term investors for buying the dollar at present values.

Source for following predictions: ABC Lateline – Experts revisit AUD predictions, May 11 2011

Andrew Pease, Russell Investments We’re still fairly cautious about the outlook for the rest of the year and we do think it will end the year weaker, potentially below 90 cents.

And the reasons why we think that are the case by the end of this year, I think the markets will start to be looking at the timing of the first American rate rise, and also we think that commodity markets have probably run too hard and with China slowing we’ll see commodity markets come back quite a bit.

Nicki Hutley, KPMG We’ve already seen the ECB start to nudge up rates and sooner or later the Federal Reserve is going to have to get of its hands and do likewise. We are seeing quite pronounced recovery there and that will gather momentum and we all know the Fed is, if nothing else, very hawkish on inflation, so they will act.

And I think that will make a psychological change to the market, bring about that psychological change that will see a shift back down to 90 cents by the end of the year.

Besa Deda, St George Bank We’re looking for the Aussie dollar to finish the year at $1.02. That is a little bit lower than where it’s currently trading. The main reason is that we are forecasting slower growth in the Chinese economy and we do think that commodity prices will peak in the second quarter of this year. Also, interest rates in other major economies are starting to move higher or will start to move higher in 2012 and the currencies of those economies will start to price that in and that will pressure the Aussie dollar lower against these currencies.

Nigel Stapledon, UNI. OF NSW My feeling in the second half of the year is that the balance of news is – it’s a lot more even. I think there’s a fair probability that the news on the US will continue to get a little bit better, but it’s a little bit more problematic about China and the net balance of that could be slightly negative for the Aussie dollar. So, I’d be pretty comfortable with a forecast of around sort of 99 cents, a dollar.

Matthew Sherwood, Perpetual I continue to expect the Australian dollar will depreciate against the US down to around 99 US cents. And the reason for that is a very solid US recovery is brewing at the moment and core inflation in the US economy is clearly rising. And as a result, I tend to think that’s going to bring the US Federal Reserve out of its trenches earlier than market expectations.

Now, whilst being hawkish on the US Fed has not been a policy which has rewarded investors in the past six months or so, my suspicion is we’re seeing the clear signs of a very solid and sustainable recovery in the US, and because of that, the US dollar would be expected to rally.