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Australian dollar has further to fall

At the start of the year, we were a lone voice forecasting that the Australian dollar would decline to US$0.65 by year-end. The Australian dollar has come under increasing pressure this month on a number of fronts. Trade tensions have continued to ramp up between the US and China, adding to global uncertainties. And the fallout from the trade war has now spilled into commodity prices with iron ore prices declining more than 20% since the start of August. What’s more, with limited good news domestically, investors are now pricing in a chance that the RBA has to cut three times more. While we think the RBA will only cut rates twice more, we believe that further declines in commodity prices as well as weakness in equities prices and sustained global uncertainty, will cause the Australian dollar to decline from US$0.67 today to US$0.65 by the end of the year. In contrast, the New Zealand dollar may have reached its trough and could appreciate a little from here.

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