The forecast is stormy with the embattled Australian dollar set to lose a further 7 per cent of its value and end the year buying only US66¢, analysts at HSBC have said. A decline into the mid-60s would have the Aussie trading at levels not seen in a decade.
As if a 13 percent decline from 2018 highs to Friday’s live quote of US71¢ wasn’t bad enough; now, following a “flurry of strikingly weak” domestic data, Australia’s currency is likely to sink to levels not seen since the great financial crisis a decade ago, researchers at HSBC have said.
Per the Australian Financial Review, HSBC has cut its 2019 year-end forecast for the Australian dollar to just US66¢—19 percent below 2018’s high of US81.36¢.
Last week was a grim one for the Aussie: it lost value against all major currencies after the Reserve Bank of Australia slashed growth and inflation forecasts and said it was now as likely to cut interest rates as it was to hike them.
None of this has been lost on HSBC, whose own economic assessments mirror those of the RBA.
This week, too, economic data has hardly inspired confidence. Adding to last week’s disappointing December figures for Australian building approvals and retail sales—down 8.1 percent and 0.4 percent respectively—was Tuesday’s figure for new home loans, which fell by 6.1 percent, much more than economists had expected.
The fact that derivatives markets are pricing in a near-100 percent chance of an RBA cut this year isn’t putting HSBC off. Though it sounds gloomy, such pricing extremes indicate that a great deal of bad news, for this year at least, is already in the price.
Among notable Australian dollar exchange rates on Friday was AUD/NZD—an important rate for business given the close trading relationship between Australia and New Zealand. The rate sank to match Thursday’s 6-week low of NZ$1.0369. If ignoring the flash crash on January 3rd, the current quote would mark a 2-year low.
Unlike the Australian dollar, the New Zealand dollar has received recent central bank support. On Wednesday, the RBNZ wrong-footed investors who had increased bets on an interest rate cut by announcing it would “keep the OCR at this level through 2019 and 2020.”
In contrast to AUD/USD, lower AUD/NZD rates are unlikely in the coming months, at least in the opinion of ANZ, which wrote on Thursday that current exchange rates represented “a good opportunity to enter at fundamentally cheap levels where relative central bank dynamics are well priced.” ANZ foresees a move in the pair towards NZ$1.07.