US73.20¢, its lowest level since November last year. Just over a month ago, currency strategists were convinced that at the start of the third quarter the Australian dollar would be challenging US80¢. However, they now warn that this downward trend could continue and that the currency could fall below US70¢ for the first time in almost eight months.
“The Australian dollar will feel more downward pressure than most because a COVID outbreak has locked down close to half the economy and the Aussie is very sensitive to global growth expectations as illustrated by the fall in equity prices,” Joseph Capurso, head of international economics at the Commonwealth Bank of Australia (CBA) said.
According to Capurso, the risk is further amplified by the Reserve Bank of Australia’s decision to keeps its weekly government bond purchases at $5 billion a week for a period longer than previously envisaged.
He further noted that the currency of the Pacific nation is also sensitive to the differentials between Australian and US interest rates. “For every 15 basis point fall in the spread, when the spread is already negative, the Australian dollar falls by US2¢ on average,” the CBA executive said. “We see a high risk the Australian dollar dips below US70¢ in coming weeks.”
Meanwhile, in its July meeting minutes, the central bank emphasised on flexibility in response to the economic impact of the lockdowns, which, according to David Plank, suggested the possibility of a delay in RBA’S tapering of quantitative easing as intended. “The widening and extension of pandemic-related lockdowns since the meeting have increased the downside risks to the economic outlook. As a consequence, we think it likely the RBA board will at least consider delaying tapering in August,” Plank, the head of Australian economics at ANZ, said in a note to clients on Tuesday.
