(Australian Associated Press)
The Australian dollar has lost a quarter of its value in the past two years, which begs the question: How low will it go?
The currency has been hitting a six year lows below 73 US cents in recent days, after being above one US dollar in May 2013.
Plummeting prices for Australia’s mining exports, a weaker outlook for the Chinese economy, expectations of a looming interest rate hike in the US and turmoil on the Chinese stock market in the past few weeks have all been a downer for the little Aussie battler.
While most analysts say the Aussie dollar won’t fall much further, LTG GoldRock director Andrew Barnett is more pessimistic, and predicts it to be 63 US cents by the middle of next year.
“I think it’s under a lot of pressure at the moment with plummeting Chinese stock markets and commodity prices and the volatility we’ve seen is not helping our local market and it’s not helping the Aussie,” he said.
Mr Barnett finds it strange that most analysts aren’t predicting a fall below 70 US cents by the end of the year.
“I think most of them are being optimistic and cautious,” he said.
“Often you see currencies and most financial markets when they get a bit stressed they will overshoot to the downside, we’re seeing that in China at the moment, and I think we’ll see that in the Aussie.”
AMP chief economist Shane Oliver said a move to 70 US cents by the end of the year is inevitable and it will fall further next year.
“The key is that the direction remains down and we are likely to see a classic overshoot,” he said.
“However, as we all know forecasting precise currency levels is a mug’s game.”
But Westpac chief currency strategist Robert Rennie said it’s unlikely the Aussie will go much lower.
“We would need to see Australia’s export commodity prices about 10 per cent lower, and you would need to see the US Federal Reserve deliver on rate hikes,” he said.
“So we’re still relatively confident of 72 US cents by the end of the year.”
Mr Rennie said the factors that have been weighing on the Aussie should stabilise in the new year and help the currency keep it’s head above 70 US cents.
“We are more optimistic that we will see signs of stability and indeed improvement in the outlook for China, we’ll see global growth continuing to show signs of improving through next year,” he said.
“There’s a risk the Aussie could be down towards 70 US cents, possibly below 70 for a short period of time but we’re not expecting the Australian dollar to spend a prolonged period below 70 at least before the end of the year.”