Top currency forecaster Emirates NBD predicts a 10 per cent slide in Australia’s dollar this year.
Emirates, the most accurate at predicting the Aussie over the past four quarters in data compiled by Bloomberg, expects it to fall to 80 US cents by the end of the year as the Reserve Bank focuses on supporting growth while the US Federal Reserve reduces stimulus, according to Tim Fox, Dubai-based chief economist at Emirates.
Second-ranked HSBC is projecting a slide to 86, one cent below the median of 39 year-end forecasts, from 88.9 US cents this morning.
“The biggest driver for the Australian dollar will be the relative stance of monetary policy of the RBA, which will veer towards being dovish, especially when compared to the Fed,” Fox said in a January 6. “The domestic economy will remain relatively sluggish due to reduced investment in the mining sector.”
Emirates isn’t ruling out cuts to Australia’s record-low 2.5 per cent benchmark even as traders see a 77 per cent chance the RBA will maintain rates at current levels until at least July.
Saxo Bank, the Aussie’s fifth-best forecaster, sees a steeper drop to 75 US cents by December 31, while fourth-ranked Societe Generale predicts a decline to 83.
RBA Governor Glenn Stevens said last month he and his board have maintained an “open mind” on whether they need to cut interest rates further. They have reduced the benchmark by 2.25 percentage points since the beginning of November 2011.
The RBA’s accommodative stance comes amid the government’s plans to rein in spending after a December forecast that the underlying cash deficit will balloon to $47 billion in the year ending June 30, from a previously projected $30.1 billion.
The economy's expansion slowed in the third quarter to 0.6 per cent from the prior three months, when it rose 0.7 per cent, data showed December 4.
“Growth should only show a modest pick-up, but with signs of rebalancing in coming quarters as non-mining aspects of the economy benefit from low interest rates,” David Bloom, London-based global head of currency strategy at HSBC, said. “A lower Australian dollar is at the heart of the success of this rebalancing.”
HSBC topped the previous rankings for the four quarters to September 30, according to data compiled by Bloomberg.
Even after the Aussie’s 14 per cent slide against the US dollar last year, the biggest annual decline since 2008, it remains 24 per cent overvalued, according to Organisation for Economic Cooperation and Development estimates.