HSBC has reaffirmed its US66¢ year-end forecast for the Australian dollar, thereby signalling an upcoming 8 percent slide in the world’s fifth most traded currency.
The Australian dollar will weaken this year to levels not seen since the great financial crisis a decade ago, the head of HSBC’s global FX strategy, David Bloom, has said.
The Aussie has impressed since threatening to breach US70¢ on March-8. The currency has started this week 2.1 percent higher than that important level, at US71.5¢, and has appreciated against all other FX majors since that date.
In recent weeks, among supporting factors have been improved risk appetite, thriving commodities markets — the price of Australia’s largest export, iron ore, rose this week to a fresh 5-year high — and improved Chinese economic data. In the hours following last week’s better-than-expected numbers for Chinese GDP growth and industrial output, the Australian dollar exceeded US72¢ for the first time since February.
Internals factors, though, will win the day in the “tug of war” with external (China) factors, Bloom says.
“I think the internal factors will win out. We’ve seen the [Australian] housing market slow, debt-to-GDP is very high [and] the US dollar is still strong.”
As for China, “I wouldn’t say that’s new news [because] we got the risk rally early this year … [therefore] I think people thought China would pick up, so there’s been no guts and thunder with stronger than expected [Chinese] numbers.”
Bloom agreed with Bloomberg’s Manus Cranny that the Reserve Bank of Australia’s recent rhetoric suggested it was happy to take part in a miniature currency war of sorts, with the RBA “prepared to let the [Australian dollar] do the heavy lifting if they need to economically.”
“Australia has always wanted a weaker currency,” Bloom affirmed.
At its most recent meeting, the RBA stated that lower Australian interest rates would “likely be appropriate” if inflation didn’t pick up, thereby easing from its previously-held neutral stance and more closely aligning itself with the Reserve Bank of New Zealand.