Currency strategist on Aussie dollar

CNC
Added On October 13, 2017

With the U.S. widely expected to raise interest rates before the year end, many Australian economists are predicting more falls in the local currency in the coming months, especially against the U.S. dollar. 
 
The Aussie dollar shot up 4.1 percent to reach a two year high in July, trading above 80 U.S. cents.
 
Since then, a strengthening greenback, fears about Australia household debt problem and low wage growth, have seen the local unit drop well below 78 U.S. cents.
 
This has led many to the believe that the Aussie dollar is shaping up for a steep fall. 
 
However, the country's largest financial institution, the Commonwealth Bank of Australia see things differently.
 
SOUNDBITE 1 (ENGLISH) ELIAS HADDAD, CBA's senior currency strategist
"We are taking the opposite view, we actually believe the Australian dollar will rally towards 85 U.S. cents over the next 12 months."
 
While the U.S. dollar is anticipated to strengthen on the back of the Federal Reserve’s potential December rate hike, Haddad explained that money markets have already priced in the increase.
 
SOUNDBITE 2 (ENGLISH) ELIAS HADDAD, CBA's senior currency strategist
"I think it's about 80 percent is priced in... so certainly in the short term higher interest rates at least in December will support, at least offer some support for the U.S. dollar, but it's unlikely going to be a material long term driver for the Australian dollar."
 
As for Australia's interest rate, the CBA is predicting an increase from the current record low of 1.5 percent, in around November 2018.
 
SOUNDBITE 3 (ENGLISH) ELIAS HADDAD, CBA's senior currency strategist
"Australia's economy is doing fairly well and domestic demand is holding up fairly well, employment conditions are encouraging, so there is certainly scope at least in the near term for Australian rate expectations to adjust a little bit higher here."
 
The continuing improvement of Australia's current account balance, now narrowing toward two percent of GDP, could also be a major factor that helps raise the fundamental value of the Aussie dollar.
 
SOUNDBITE 4 (ENGLISH) ELIAS HADDAD, CBA's senior currency strategist
"On the household debt issue, the RBA will continue to let macroprudential measures deal with this rather than trying to curtail the issue with monetary policy."
 
Haddad says global growth is gaining traction, which is led by China, Australia's largest trading partner.