$A to slump to 68 US cents by end of 2015

9.DollarA to slump to 68 US cents by end of 2015

(Australian Associated Press)

By Lucy Hughes Jones

SYDNEY, Oct 12 AAP – The Australian dollar is making healthy gains now, but it should sink to 68 US cents by the end of the year, an international investment bank says.

BNP Paribas global head of FX Steven Saywell says the biggest drop will come in the next three months or so, and predicts the currency will remain around similar levels of 67 and 68 US cents next year.

The currency hit a seven-week high on Friday evening as hopes for a US interest rate hike this year begin to wane.

It peaked at 73.40 US cents, its highest level since August 21, and was trading at 73.25 US cents at 1246 AEDT on Monday.

Mr Saywell tips the US Federal Reserve will raise the cash rate for the first time since the global financial crisis in early 2016, which will further weigh on the Aussie.

He said the US is bucking a global trend where most other major countries are easing monetary policy.

And the chances of Australia following other commodity-producing economies like Canada, Norway and New Zealand to cut rates has also risen, he said.

“We think ultimately they may not, but the market could start to price in easing from the Reserve Bank of Australia and that will probably take bond yields lower,” Mr Saywell said.

“That could mean borrowing rates for mortgages and corporations could actually fall.”

And as China’s slowdown continues to hurt Australia’s resources sector, the weaker currency is boosting other sectors such as tourism.

Mr Saywell said while the Aussie is likely to weaken against a resurgent greenback, it will get even stronger against the Euro.

“For a traveller, it means it’ll be expensive to go to the US but it’ll be quite advantageous to go to Europe,” he said.

“And you’ll get more tourists coming to Australia from Asia and the US because the Aussie will be cheaper against those currencies – but maybe fewer Europeans will come,” he said.

The currency fell to a six-year low of 68.96 US cents in September amid intensifying concerns for the Chinese economy, before partly rebounding in recent weeks, St George economists said.

“In our view, markets have taken an overly pessimistic view on the outlook for China, the domestic economy and interest rates,” they said.

Financial markets are now fully pricing in a 25 basis point rate cut from the RBA by March next year, which is also dragging the Australian dollar lower.

But St George expects the currency to rebound in the near-term and maintains its long-held forecast of 73 US cents for the end of 2015.

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