Australian Dollar outlook deteriorates further, UBS analysts cut forecasts

The pound sterling to Australian dollar exchange rate has moved a further 0.68 pct higher since last night's close to reach 1.7666.

"If pairs like GBP/AUD continue to move higher then AUD/USD will remain heavy. Nevertheless, after a 250 pip fall this week I’m of the opinion that it’s fallen far enough," says trader Sean Lee at FXWW concerning the short-term outlook for the Aus dollar.

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UBS downgrade Australian dollar forecasts

Pressure on the Australian dollar is coming from two points: 1) The issue of Fed Tapering and 2) The increasingly vocal Reserve Bank of Australia (RBA).

According to UBS analyst Gareth Berry "the Australian dollar looks increasingly vulnerable as the Fed prepares to taper. The RBA’s tolerance of persistent currency strength seems to be wearing thin too with the mining investment boom peak now upon us."

Rhetoric has already intensified, and on Thursday Governor Stevens refused to rule out ‘large-scale intervention’ entirely. The latest data also show the central bank may have sold Australian dollars into the FX market on a small-scale in October.

"Putting all this together, the outlook for the Australian dollar seems challenging and we lower our AUDUSD forecasts to 0.92 (1m) and 0.90 (3m), down from 0.95 and 0.93 previously," says Berry.

Chances for the AUD to stay weak have clearly risen for now on the back of many RBA members complaining about its strength, including Governor Glenn Stevens.

"Although Stevens acknowledged that the benefits of large-scale FX intervention would currently not offset the costs, he indicated that he is open-minded about this, a clear signal that the bank wants to keep the AUD lower," says a client note from UniCredit Bank.

Meanwhile, the Australian dollar vs New Zealand dollar is currently flirting with critical levels.

A sustained trend lower is under way and we watch for a clear push under 1.12.

Such a move would open up the downside for a range extension trade towards 1.0850 at least.