(Bloomberg) — The Australian dollar slid essentially the most in six years in 2024 but its decline looks removed from over — there’s every prospect it can fall below 60 US cents in coming months.
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The Aussie has been battered because the end of September by deteriorating global risk sentiment and growing expectations the Reserve Bank of Australia will probably be compelled to begin cutting rates of interest. One other negative is looming within the prospect of a trade war between the US and China, Australia’s largest trading partner.
“A slide all of the option to 60 cents is conceivable in the danger case where US equities take fright at an unfolding global trade war, China’s fiscal counter-stimulus is insufficient, and the RBA is forced to chop quickly to lend support,” said Gareth Berry, a foreign-exchange and rates strategist at Macquarie Bank Ltd. in Singapore.
The Aussie tumbled 9.2% last yr, touching a low as 61.79 cents on Dec. 31, before recovering marginally to finish last week at 62.16 cents. The primary key support level for the currency is the October 2022 low of 61.70 cents, a break of which might put it on the weakest because the pandemic risk selloff in April 2020.
A test of 61.70 cents is feasible as soon as this week if Australia’s November inflation data due Wednesday is available in below market expectations, boosting bets on an RBA rate cut at its next policy decision on Feb. 18.
The minutes of the central bank’s December gathering published on Christmas Eve included language that may very well be interpreted as meaning the February decision is “live,” based on Richard Franulovich, head of foreign-exchange strategy at Westpac Banking Corp. in Sydney.
The minutes tabled the potential for “relaxing the degree of monetary policy tightness,” and in a separate section added that additional information on the labor market, inflation and expenditure can be available by the point of the February meeting, he said.
The Aussie has room to increase losses, even after its 10% slump last quarter, and is more likely to end March at about 61 cents, Franulovich said.
The currency limped “through thin year-end markets with a fragile toehold on the 0.62 handle,” and its failure to climb back above the extent of 0.6275 “keeps the main target squarely towards ongoing downside,” he said.