Australian Dollar Outlook a Little Brighter But Questions on the 'New Normal' in China
The Aus dollar (AUD) could be nearing the bottom of a longer-term decline with potential gians against the pound, US dollar and euro ahead.
Are the New Zealand and Australian dollars about to see turn in fortunes?
We are certainly seeing more signs that the two trans-Tasman currencies may be about to turn higher. Earlier this week we reported that a major bank is predicting the New Zealand dollar to ultimately have put the worst of its recent weakness behind it.
Can the same be said of the Australian dollar?
The latest global currency forecasts issued by TD Securities - a leading Canadian investment bank - has confirmed that the Aussie dollar could also be about to see higher levels.
Whether or not this will be welcomed by the Reserve Bank of Australia remains to be seen, but those looking to pay out of AUD over coming months will be buoyed by the news.
Analyst Annette Beacher at TD Securities' Singapore office has done her research and said:
"A new near-term AUD positive is a shift to a consultative Prime Minister and a fresh Cabinet. If optimism drives investment and the budget deficit is reigned in, expect AUD target upgrades by year end."
The AUD peaked at $US0.73 after the RBA’s upbeat testimony/dovish FOMC combination, but has been a one-way grind lower to $US0.70 as China concerns linger and the market re-evaluate the next move from the Fed.
The Australian economic picture remains mixed though, a solid employment, steady unemployment rate at 6-61⁄4% and strong exports contrast with flat retail sales.
Building approvals are at the top of a record peak (+224k, LR ave +165k). Q2 GDP disappointed a t +0.2%, or a sub-trend 2%/yr, while core inflation i s simmering a t 21⁄4%. Housing and credit remain hot.
The Australian to US dollar exchange rate (AUDUSD) is forecast to be at 0.68 by the end of 2015 before falling to 0.67 in mid-year where it is predicted to remain until the end of 2016.
Against the euro, the AUDEUR is seen at 1.62 at the end of 2016, 1.58 at mid-year and 1.62 by the end of 2016.
As mentioned though, these figures could be revised higher, we will update should this be the case.
Latest Pound / Australian Dollar Exchange Rates
  | Live: 2.013▼ -0.16%12 Month Best:2.1645 |
*Your Bank's Retail Rate
| 1.9445 - 1.9526 |
**Independent Specialist | 1.9848 - 1.9929 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
AUD was supported in late September as China Sep official and Caixin PMI came in at 49.8 and 47.2, better than the forecasts 49.7 and 47.0.
"However, the figures do not change our expectation of further slowdown in Chinese economy, as China is likely to experience a prolonged period of slow growth," say CitiFX in a note to clients.
Citi say they see the Chinese economy as now being in the middle of transition, with old economy in or near recession but relative resilience in infrastructure and the new economy.
Chinese Green Shoots?
The outlook for the Aussie dollar therefore rests heavily with the progression of economic growth in China over coming months.
Will the slowdown continue and thus undermine the AUD further, or will we see an improvement in Chinese economic activity.
Kamel Mellahi, of Warwick Business School, is a Professor of Strategic Management and researches China, he thinks the outlook is better than many are anticipating:
"While the overall picture remains mixed, there are a lot of green shoots in China and several indicators are pointing to much stronger economic growth in the coming months.
“I expect to see additional policy easing before the end of this year to shore up economic growth, but the jury remains out on whether this year’s seven per cent growth target is going to be hit.”
Calling Chinese growth is notoriously difficult but any improvements here will certainly play into the camp of those who are expecting a higher Australian currency.
