Australian dollar may hit US65c

3 March, 2017

The Australian dollar’s run as one of the best performing currencies this year may be coming to an end on the back of weaker commodity prices and rate cut expectations over the past week.

At 7.29pm (GMT) the Aussie dollar was trading at US75.59c down from US76.75c in yesterday’s trading.

Iron ore prices are off almost 4 percent since reaching a 24-month high last week, and coupled together with disappointing export and trade balance figures release earlier today, the writing may be on the wall for the Australian dollar.

The disappointing export figures are mainly attributed to China, Australia’s biggest trading partner with the biggest culprit being a reduced demand for Iron ore.

Any slowdown in China would be disastrous for the Australian economy.

Ever since last week analysts and government officials alike such as Reserve Bank of Australia Governor Philip Lowe ,who noted the investors shouldn’t get used to Australia’s biggest export hanging around the $90 mark,

“I do think that commodity prices are going to come back off again,” Lowe told a parliamentary panel last Friday.

“We shouldn’t start to think that the iron ore price is going to stay around $90.” He added.

Another factor hurting the Australian dollar at the moment against it’s American counterpart is expectations that the RBA will have to lower interest rates too boost inflation, which will bring the benchmark interest rate on par or even lower than in the US,

Paul Dales, chief Australia and New Zealand economist for Capital Economics predicts that interest rates in Australia as well as the Aussie dollar are headed much lower,

“The RBA won’t raise rates in 2017 or likely in 2018, and I wouldn’t be putting much money on a hike in 2019 either. In fact, with the housing market slowing, the labour market weakening and inflation staying below target it’s possible that there will be cuts this year to 1 percent” he said.

“We also think the Australian dollar could fall from US77c today to around US65c because of RBA rate cuts, a stronger US dollar thanks to Trump’s expansionary plans for the world’s biggest economy and falling commodity prices.” he added.


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