The Australian dollar could lose as much as 30 percent of its value if a bold prediction from a BNP Paribas researcher is anything to go by. Prominent risks to the Aussie include a Chinese economic slowdown and a deterioration in Australia’s housing market.
Colin Harte, a senior researcher at BNP Paribas Asset Management, doesn’t mince his words.
In comments reported by the Financial Times, Harte said this week that the Australian dollar is “going to get absolutely crucified . . . and could suffer a 25-30 percent fall.”
Strategists at banks are not usually so bold.
“You could have a bloodbath,” Harte says, “because the Reserve Bank of Australia could allow the currency to go lower in order to attract funding and domestic inflation to ease the pain.”
The pain Harte speaks of is that caused by a Chinese economic slowdown or further declines in Australian house prices, or both.
The property market in Australia is already showing signs of distress. House prices fell in the December quarter by more than in any quarter since 2008 and, with that in mind, Deutsche Bank has added an Australian property market crash onto its list of top 30 risks to the global economy.
China, on whose economic momentum Australia relies, is also slowing. Premier Li Keqiang acknowledged on Wednesday serious difficulties for China’s economy, as did economists polled by Reuters, who collectively predicted further cooling on the back of US tariffs, which hinder Chinese exports, and weakness in domestic demand.
Under such conditions, markets have moved to price in a 25 percent chance of Australia’s central bank cutting interest rates from record lows. A cut, if enacted or increasingly expected, would rock the Australian dollar.
Australia’s currency has so far had a successful start to 2019, although it remains well down on its highs from last year. When last seen on Thursday, AUD/USD traded at $0.7174, nearly 2 percent higher for January but 11.5 percent lower than exchange rates a year ago. AUD/EUR, meanwhile, was quoted in and around €0.63, near to a 4-week high and 2.4 percent higher this month, but 4.5 percent lower than its best 2018 rate.
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.
General advice: The information on this site is of a general nature only. It does not take your specific needs or circumstances into consideration. You should look at your own personal situation and requirements before making any legal, accounting or financial decisions. The foreign exchange rates and products compared on this page and website are chosen from a range of products that bestexchangerates.com (BER) has access to and are not
representative of all the products available in the market.
We may receive referral fees in relation to your activity on the BER website however this doesn't affect the exchange rates or fees you are charged.
The use of terms "Best" and "Top" are not product ratings and are subject to our disclaimer.