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- One pound back to buying 2.0 Australian Dollars by end-2019
- Aussie-US Dollar exchange rate seen as static through 2019
- Pound to move beyond 2.0 against the New Zealand Dollar through 2019
One of the antipodeans largest lenders has confirmed a bearish outlook on both the Australian and New Zealand Dollar's for the remainder of 2018 with further underperformance being eyed in 2019.
ANZ have this week told clients of their investment and corporate banking arms that they retain a bearish bias toward risk sensitive currencies as global sentiment is ripe for a turn.
Indeed, global conditions are a key factor to watch for both the Aussie and Kiwi going forward as both currencies have shown a strong correlation to overall investor sentiment as well as the performance of the Chinese economy - the leading export market for both Australia and New Zealand.
"Liquidity is already tight, sentiment towards US assets is near euphoric and volatility is low, a reversal in these will not be supportive of risk sensitive currencies," says Daniel Been, Head of FX Strategy at ANZ in Sydney.
And, the performance of China appears to be unlikely to aid the two currencies either.
"For the AUD and NZD, better news around China is nearly absorbed and over the rest of the year we remain bearish on both," says Been.
With regards to the Australian Dollar's outlook specifically, Been says:
"The AUD looks like it can’t catch a break. Widening interest rate differentials vis-à-vis the USD, an unsupportive risk backdrop and the US-China trade tiff have pushed the AUD lower over the year. In our view, these stories will weigh on the medium term outlook."
This report is published on the same day that we see US President Donald Trump reignite his trade dispute with China saying he wants to impose a 25% tariff on $200 billion of Chinese exports to the US as soon as a public comment period on the proposed levies comes to an end next Thursday.
The comments came as part of an interview in which the US president also renewed criticism of the World Trade Organization, saying he would withdraw the US from it if the international body does not "shape up". It's not yet clear what kind of impact this would have on the world's largest economy.
Originally the proposed tariff rate was supposed to be 10% but was increased to 25% at the beginning of August. Reports of further action come after US-China talks ended in Washington last week with few signs of any progress.
"We think the global risk/growth backdrop will increasingly challenge cyclical currencies like the AUD," says Been.
Domestic developments aren't constructive either. ANZ believe the deceleration in Australia’s housing prices combined with ballooning household debt are risks to domestic growth and are more reasons to be cautious about the medium term direction of the AUD.
New Zealand Dollar: Back of the Pack
The New Zealand Dollar is an underperformed in the G10 space at present:
This year the currency is nursing losses of 2.55% against Sterling, 3.60% against the Euro and 6% against the US dollar.
And, this underperformance is being tipped to extend.
"At a time when global growth and liquidity forces are conspiring against the NZD, the domestic scene adds to the negative vibe," says Been. "We are no longer confident that the RBNZ’s next move will be a hike. A non-trivial risk exists that it will be a cut."
ANZ see a domestic economic picture that adds to their belief the currency is set for a bearish medium-term performance.
Forecasts for the Australian and New Zealand Dollars
For the Australian Dollar we have the AUD/USD and GBP/USD forecasts, we have calculated the cross GBP/AUD exchange rate, as is the case with GBP/NZD.
AUD/USD at 0.70 in December
GBP/USD at 1.30 in December
GBP/AUD at 1.85 in December
AUD/USD at 0.70 in June 2019
GBP/USD at 1.35 in June 2019
GBP/AUD at 1.92 in June 2019
AUD/USD at 0.70 in December 2019
GBP/USD at 1.40 in December 2019
GBP/AUD at 2.00 in December 2019
New Zealand Dollar forecasts from ANZ show:
NZD/USD at 0.62 in December
GBP/NZD at 2.10 in December
NZD/USD at 0.61 in June 2019
GBP/NZD at 2.220 in June 2019
NZD/USD at 0.61 in December 2019
GBP/NZD at 2.30 in December 2019
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