FYI | May 01 2007
By Chris Shaw
While the Australian dollar has been a stellar performer against the US currency of late the release of the weaker than expected Australian CPI figures last week have put a lid on the currency’s march, at least according to ANZ Banking Group senior currency strategist Tony Morriss.
He now expects US84c to work as a cap on the domestic currency in the short-term, with potential for some period of consolidation and a possible slide down to test levels closer to US81c.
While the Aussie dollar has benefited from an improving terms of trade, strong global growth and positive interest rate differentials, Morriss notes it has also enjoyed these factors at the same time as the US dollar has been performing very poorly thanks to less positive news from the world’s largest economy.
Morris expects there may now be something of a shift, with the Aussie currency in coming weeks to be driven more by the performance of the US dollar than by existing economic conditions, which is significant as there are some signs the greenback is now finding some support.
But with the US dollar so weak Morriss expects a gradual improvement in the US trade balance, as the weaker currency will lift the price of imports for US consumers. This in turn should prove supportive for the US economy generally as it should generate higher growth over the longer-term.
This, Morriss argues, is suggestive of the US dollar gaining some support from the improved growth outlook, especially as there is the chance the Aussie dollar loses some support from the unwinding of hedge positions related to M&A activity such as Qantas (QAN) and Rinker (RIN) that continue to drag on.
Any correction should be a short-term move in Morriss’s view, as his forecast calls for the Australian dollar to trade at US83c by the end of June before a slow decline to US81c by the end of December. Commonwealth Bank too expects the Assie dollar to remain north of US80c for the remainder of calendar 2007.