Loading...

Home pages - full list (A-Z)

Westpac Cuts Australian Dollar Forecasts, Expects Interest Rates to Halve This Year

The struggling Australian dollar will lose a further 5 percent of its value against the US dollar and pound before the year is out, and 3 percent against the euro and New Zealand dollar, Westpac predicted on Friday.

#News #AUD #EUR #GBP #NZD #USD
Email share     Facebook     LinkedIn    Twitter
 

Westpac, one of Australia’s ‘Big Four’ lenders, has cut its Australian dollar forecasts, it announced on Friday. The decision reflects an increased likelihood of three interest rate cuts this year. Westpac says it now expects the Reserve Bank of Australia to cut its cash rate by a quarter-point in June and August, and possibly again in November — policy moves that would halve Australian rates to a record low of 0.75 percent, from 1.5 percent.

Westpac is now expecting AUD/USD at $0.66 at year-end, nearly 5 percent below Friday’s closing exchange rate of $0.693. The lender’s new forecast mirrors that from GSFM advisor Stephen Miller, who said last week he was targeting “something like the mid-60s.”

It’s been more than a decade since the Aussie has traded at $0.66. As recently as January 2018, the currency bought more than $0.81.

Westpac’s implied 2019 forecasts have AUD/GBP, AUD/EUR and AUD/NZD at £0.515, €0.6 and N$1.02, marking declines from current levels of 5.5, 3.5 and 3.0 percent respectively.

Within its latest weekly report, Westpac cites a number of economic reasons for its pessimism. Among those is an expectation for Australian unemployment to reach 5.4 percent this year, almost certainly a bridge too far for the RBA and a level that would warrant significant policy easing.

It was suggested within the RBA’s May-7 statement that the labour market is of special importance as a policy-determining factor, and the RBA’s own forecast for unemployment to “remain around 5 percent” is already under threat after recent data showed a jump to 5.2 percent.

AUD to USD - 1 Week chart to 25 May
AUD/USD - 1 Week chart to 25 May

“Our forecasts for employment, wage growth, economic growth, inflation and conditions in the housing market are consistent with the need for [RBA] policy to ease through the full course of 2019,” Westpac writes.

The Australian lender even goes as far as to suggest “some form of [future] quantitative easing” at interest rate levels below 1 percent.

Quantitative easing would be an extraordinary step for the RBA and its mere suggestion is indicative of Westpac’s inflated bearishness on the Australian economy. This unconventional method is a means of increasing the money supply and encouraging lending, and has been used as a weapon of last resort by central banks throughout Europe, in the US and Japan in the years following the 2007-08 financial crisis. In the absence of other central banks doing the same, QE also offers an ironclad guarantee of broad-based and long-lasting currency weakness.

 

Further Reading

 

Australians Swerve Thai Holidays with Exchange Rates in the Gutter

With AUD-THB at a 10-year low, Australians travelling this year to Thailand’s wildly popular resorts are facing holiday costs 50 percent higher than those paid in 2012. With exchange rates as they are, those in Oz are choosing better-value destinations.

Last update: 23 Jun, 2019

Canadian Dollar in the Spotlight After Surging to 16-Week High

Lifted by oil, economic data and the Fed, the Canadian dollar has soared against the US dollar to a 16-week high and has reached even more impressive milestones against the pound, euro and Australian dollar.

Last update: 20 Jun, 2019

Banks Charge Small Customers 25 Times More for FX, Research Shows

New research from the European Central Bank shows that banks charge smaller customers up to 25 times more for FX forward transactions and that those who fail to compare providers pay 14 times more for FX than those that do.

Last update: 17 Jun, 2019

  

Posted to: News

 
 
Please note that the opinions of our authors are their own and do not reflect the opinion of Best Exchange Rates and should not be taken as a reference to buy or sell any financial product.
 

Get a Better FX Deal when you Send and Spend Abroad.

 

Do NOT follow this link or you will be banned from the site!