ANZ has slashed its Q4 2019 forecast for the Australian dollar to $0.65, from $0.70, citing the “enduring” nature of the US-China trade war as its reason to be bearish.
In a note describing ANZ’s revised currency forecasts, the bank’s chief FX strategist Daniel Been said that his team had “drastically cut forecasts for [all] risk sensitive, cyclical currencies,” including the Australian dollar. AUD/USD is now expected to fall to $0.65 by year-end — a level not seen since 2009. ANZ had formerly predicted a rate of $0.70.
At $0.6935, the Aussie settled on Friday 15 percent lower than its best rate from 2018 ($0.8135), yet ANZ’s updated AUD forecast suggests a further 6 percent decline is in the offing.
“Global risk sentiment has soured dramatically in the space of just a few weeks, which is bad news for the highly-cyclical AUD,” Been wrote.
“While the outlook for [other] major currencies has remained largely unchanged … we have made substantial downward revisions to our Asian currency forecasts as well as to the AUD.”
Been cited the “Trump-led China offensive” as his reason for pessimism.
Over the past year, under Trump’s leadership, Washington has ignited a trade war between the world’s two largest economies — a war which most recently has seen a 25 percent tariff slapped on hundreds of billions of dollars’ worth of Chinese exports. Washington has also added Huawei to its “entity” list, making it impossible for the tech giant to do business with American firms. China has promised retaliation, including enhanced tariffs of its own and an “unreliable US entities” list.
“The Trump-led China offensive … appears to be a deliberate policy shift,” Been says, and this is likely to become “a more enduring fixture of global trade.”
The Australian dollar is expected to suffer from a trade-induced decline in the demand for industrial commodities, which Australia exports to China in great quantities, and from a souring of risk sentiment.
Moreover, in an effort to support economic growth and boost inflation, which remains well below target, the Reserve Bank of Australia is now expected to cut interest rates at least twice this year, making the Australian dollar susceptible to yield-chasing capital outflows.
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