Australian dollar - market update
It was an excellent end to 2017 for the Australian dollar. In the final three weeks of the year, the currency made the most of an impressive year-end rally in commodities and climbed by three cents against the US dollar, or roughly 4%, to end the year a whisker above 0.78. Things haven’t been so easy in early 2018, however.
In early 2018 (to February 15th), despite a marginal climb to 0.79 against a faltering US dollar, the Australian dollar has been broadly weak, having fallen towards multi-month or multi-year lows against the New Zealand dollar (1.0705), euro (0.635) and yen (84).
Entering 2018, most forecasts for AUD/USD for year-end lay between 0.7 and 0.75 (mostly bearish AUD). By far the most optimistic forecast came from Commonwealth Bank, which predicted the return of broad US dollar weakness and a subsequent rise in AUD/USD to 0.85.
Goldman Sachs have predicted that iron ore prices – crucial to Australia’s national income – will fall 30% in 2018. If the bank is correct, this will weigh on the Australian dollar.
Among those who will be happy with further declines in the Aussie’s value are Australian exporters and those at Australia’s central bank. In 2017, RBA statements regularly complained that AUD appreciation was contributing to “subdued price pressures in the economy” and was weighing on the “outlook for output and employment.”