(Bloomberg) — The Australian dollar has fallen the most in six years in 2024, but the decline appears far from over – there is every chance the dollar will fall below 60 cents in the coming months.
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Since the end of September, the Australian has suffered from deteriorating global risk sentiment and growing expectations that the Reserve Bank of Australia will be forced to cut interest rates. Another negative looms in the prospect of a trade war between the US and China, Australia’s largest trading partner.
“A drop all the way to 60 cents is conceivable in the risk scenario where US shares are spooked by an unfolding global trade war, Chinese counter-stimulus is inadequate and the RBA is forced to make rapid cuts to provide support,” Gareth said. Berry, a currency and interest rate strategist at Macquarie Bank Ltd. in Singapore.
The Aussie fell 9.2% last year, hitting a low of 61.79 cents on December 31 before recovering marginally to end last week at 62.16 cents. The first major support level for the coin is the October 2022 low of 61.70 cents, a break from which would put the coin at its weakest level since the April 2020 pandemic sell-off.
A test of 61.70 cents is possible as soon as this week if Australian November inflation data, due on Wednesday, comes in below market expectations, increasing bets on a rate cut by the RBA at its next policy decision on February 18.
The minutes of the central bank’s December meeting, published on Christmas Eve, contained language that could be interpreted to mean the February decision is “live,” said Richard Franulovich, head of currency strategy at Westpac Banking Corp. in Sydney.
The minutes presented options for “easing the degree of monetary policy tightness,” adding in a separate section that additional information on the labor market, inflation and spending would be available by the time of the February meeting, he said .
The Aussie has room to extend losses even after last quarter’s 10% slump, and will likely end March at around 61 cents, Franulovich said.
The currency stumbled “through thin end-of-year markets with a fragile hold at 0.62,” and its inability to climb back above the 0.6275 level “keeps the focus squarely on the ongoing downtrend,” he said.
