You are here

Forecasts for Aussie, kiwi cut, but gains still seen by end-2019

Weighing on analysts' minds are uncertainties amid US-China trade war and underwhelming economic data

BT_20190110_PQAUS10_3664436.jpg
Analysts say a resolution in the US-China trade dispute would boost the Aussie. As for the kiwi, some analysts see substantial downside risks.

Sydney

FOREX analysts have lowered their forecasts for the Australian and New Zealand dollars from a month earlier but still see them bouncing modestly by the end of 2019, a Reuters poll showed, with uncertainties rife amid the Sino-US trade battle.

A Reuters survey of up to 53 analysts saw median predictions for the Aussie at US$0.7100 on a one-month horizon, from US$0.7285 in the previous poll and current levels of US$0.7140.

Analysts also marginally lowered their projections for 3 and 6 months to US$0.7200 from US$0.7300 earlier. They see the Aussie at US$0.7400 by December, compared with previous expectations of US$0.7500.

sentifi.com

Market voices on:

An indication of the uncertainties playing on investors' mind is the broad range of forecasts, from as low as US$0.6600 to as high as US0.8200 on a 12-month horizon.

The survey comes amid renewed downward pressure on the Australian currency, which shed nearly 10 per cent in 2018, and hit a near-decade low of US$0.6715 last week, driven by a computer-led "flash crash".

The trade-exposed currency has been used by investors to wager on, or hedge against, tensions in emerging markets and the risks to the Chinese economy from US tariffs.

Analysts say a resolution in the trade dispute would boost the Aussie. "The single most important event risk for all things AUD in coming weeks is the fate of US and China trade talks," said Ray Attrill, currency strategist at National Australia Bank. "These need to yield agreement to a reasonably comprehensive deal as a minimum prerequisite for a recovery in global risk asset sentiment and a stronger AUD," he added.

"We have lately become much more hopeful of this being realised, given that both sides now have big incentives to strike a deal." A run of disappointing data and recent falls in stock markets in the United States and China have led some investors to believe the two nations will come to a resolution. Hopes have been boosted by the extension of current trade talks in Beijing into an unscheduled third day on Wednesday.

Also, underwhelming economic data at home has led investors to start pricing in a small chance of a rate cut by mid-2020 even though the Reserve Bank of Australia (RBA) has repeatedly stated the next move in rates would be up.

Given slowing global growth, financial stress and trade tension, "it seems unlikely that the A$ should trade much above the midpoint of our fair value range i.e. much above 0.73," Westpac strategist Robert Rennie said in a note on Wednesday.

Westpac's forecasts of some tightening by the US Federal Reserve in 2019, no change in the RBA's policy and weaker commodity prices "point to the lower end of the fair value range dropping below 0.70 through 2019." Only a handful of poll participants joined Westpac in forecasting a fall under US$0.7000. ANZ sees the Aussie at US$0.6800 in three months and US$0.6700 in six.

Saxo Bank and Singapore's DBS too are bearish on the currency, while BofAML and Credit Agricole CIB are among the most bullish.

For the kiwi, analysts nudged their near-term forecasts lower but see it rising to US$0.7000 by year-end, compared with about US$0.6730 on Wednesday morning. They see the currency stuck at US$0.6700 in one, three and six months' time, according to the median of up to 46 forecasts.

To be sure, some analysts see substantial downside risks.

For six months ahead, forecasts stretch as low as US$0.6000. The kiwi stumbled in 2018, shedding more than 5 per cent against the US dollar, although better-than-expected domestic data has helped cap losses. REUTERS