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Australian dollar may fall below US60¢ in 'benign collapse', Deutsche's Adam Boyton says

The economist who early last year made the then outrageous prediction that the Australian dollar could slide to US66¢ by the end of this year, now says a 50s handle is possible by the end of 2016.

Deutsche Bank chief economist Adam Boyton was one of very few analysts to forecast a significant drop in the Australian dollar back when it was still trading close to parity with the greenback.

In early February 2014, when the Aussie traded at about US90¢, Mr Boyton warned a "benign collapse" sparked by falling commodity prices, declining mining investment and reduced government spending could take the currency down to US66¢ by December - a prediction that at the time was a brave minority call but one that now looks startlingly prescient.


On Wednesday, the dollar sank below US70¢ for the first time since April 2009, touching a low of US69.78¢ after the government reported that second-quarter GDP expanded a less-than-expected 0.2 per cent, the slowest pace since March 2013. On Thursday afternoon the $A had recovered to US70.1¢, but analysts were scurrying to revise their projections for the Aussie lower.

Mr Boyton is now saying the dollar will keep falling to US60¢ by the end of 2016, and further down the road possibly even past that into the US50¢ range.

"I wouldn't be surprised if the Australian dollar is printed with a 'five' handle in the next three years," Mr Boyton said.

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"As far as reaching a bottom, I don't think we'll know what that is until Chinese growth picks up, and our economy adjusts from the mining boom enough the RBA will be considering raising rates. All of those things seem quite some distance away, and I don't think the Australian dollar is likely to rise until at least 2017 or 2018."

Mr Boyton is not alone in this view. In June, Kaizen Capital's chief investment officer Connor Grindlay warned the dollar still had far further to fall and could sink to barely more than half the value of the US dollar based on similar behaviour in the past.

Suncorp senior economist Darryl Conroy is also expecting the dollar to fall towards US50¢.

"Historically, such periods introduce much change and volatility in exchange rates, whereby currencies tend to over-shoot. As such, we may revisit currency levels we have not seen for many years," Mr Conroy said.

"The Aussie dollar at US50c represents overshoot to longer term fundamentals."

The local currency has been tumbling for more than two years and was trading about US93.5¢ this time last year. But the downward trend has accelerated in recent months as concerns about China's slowing growth caused a commodity price crunch.

China's waning appetite for key commodity exports has compounded Australia's struggle to develop from a mining-led to a more services-led economy.

AMP chief economist Shane Oliver is forecasting a multiyear decline for the Aussie because of these challenges. On Wednesday he lowered his end-of-2015 forecast to US68¢ from US70¢ and expects the dollar to hit US60¢ by the end of 2016.

"The Aussie is a volatile currency but the broader trend is downwards. We've got to US70¢ earlier than we thought, and it's got a lot further to go," Mr Oliver said.

Westpac senior currency strategist Sean Callow said they were yet to update their forecasts, which are revised weekly on Fridays.

"We had US70¢ for the year end and we've already hit that so that means we need to consider the possibility of a lower number. Although we do not expect the RBA to cut rates there are several changing factors."

The Commonwealth Bank is yet to update its currency forecasts of US70¢ in the first quarter of 2016. Currency strategist Elias Haddad said they were waiting at least another fortnight before revising their forecasts so they could include employment data released on Thursday and the outcome of the US Federal Reserve's meeting on September 16, in which there is a slim chance they may raise interest rates for the first time in a decade.

A falling currency is not all bad news however. Mr Boyton said the lower Australian dollar save the country from recession in coming years if the national economy failed to pick up in time.

"A weaker Australian dollar is a necessary part of the adjustment to a post-mining economy," Mr Boyton said.

"An important historical precedent is during the Asian crisis of the 90s, the Aussie's falling by a lot helped cushion the economy and saved us from following all of our major Asian trading partners into recession."

The Australian dollar fell to a historic low of US47.9¢ in April 2001.