kids polo shirts Experts clash on whether it will crash or surge
Whether the Aussie dollar gets stronger or weaker depends on factors like the speed of US economic recovery, whether commodity prices get higher, and by how much China’s economy slows down.
But there was even substantial disagreement among the banks on all of those factors.
Why might the dollar surge?Commonwealth Bank, UBS and HSBC were the banks had the most optimistic forecasts.
The Australian dollar will strengthen because of a depreciating US greenback, CBA’s senior currency strategist Elias Haddad said.
Although US President Donald Trump finally managed to pass his corporate tax cuts through Congress, “the fundamental downtrend in the US dollar is intact”, Mr Haddad said.
Why the Aussie is set to dive A strong currency used to be a source of national pride, but interest rates and commodity prices may sink the Aussie dollar.
There is no doubt that the Federal Reserve will raise America’s interest rates this year. But the question is how many times will it happen?
Even within the Fed’s own committee, there’s significant disagreement on whether it should be two rate hikes, or at least four.
Higher US interest rates, in theory, makes America a more attractive place to invest luring money away from Australia (and other countries), and resulting in less demand for the local currency.
But there are also other countries with “improving economies and moderately rising inflation” which will announce rate hikes in the near future.
Mr Haddad said this “will have a greater appreciating impact on their exchange rates, than will the Fed lifting interest rates over 2017 18 on the US dollar”.
The bulls’ AUD/USD forecasts
Mar 18Jun 18Sep 18Dec 18Mar 19Jun 19Sep 19Dec 19Next RBA rate hikeNo. of US hikes in 2018/19CBA80818283848586882H, 20182UBS77 81 842H, 20185HSBC78818484848484842H,
20183CBA also expects commodity prices will “remain supported” due to the global economy experiencing its “first synchronised upswing for a number of years”.
As for UBS’s position, its global macro strategist Joakim Tiberg believes the Australian dollar will benefit from “a lot of global growth and decent demand for commodities”, especially at lower prices.
Even though iron ore prices have rebounded in recent months (and are sitting above $US74 per tonne), they are still a far cry from its hey day.
Back in early 2011, Australia’s key commodity was worth more than $US180 a tonne.
“But if you look at volume of exports, they have more than doubled since 2011, when the commodities boom was still happening,” Mr Tiberg said.
In any event, all three of the ‘bullish’ banks expect the Reserve Bank to raise interest rates in the second half of this year.
We asked if you thought the Australian dollar would crash or surge in 2018 19. Read the comments below.
Reasons why the dollar might fallOn the other end of the spectrum, Morgan Stanley had the most pessimistic view, and expects the Australian dollar “to depreciate sharply over 2018”.
Why the RBA can’t move Some economists see the Reserve Bank hiking interest rates before the end of the year. Ian Verrender reckons they’re dreaming.
The New York based investment bank is betting the RBA will keep local interest rates on hold at the record low 1.5 per cent until the second half of 2019 while the Federal Reserve will lift US interest rates three times this year.
As for most of the other banks, they expect the next domestic rate hike will happen, at least, by the end of this year but with no consensus on the number of US rate increases ahead.
“A heavy toll will be taken on the Australian dollar” given that US rates will likely become higher than Australia’s within months, according to Westpac’s chief economist Bill Evans.
The last time this occurred was about two decade ago, when the Australian dollar plunged as low as 48 US cents.