forecast and outlook for the australian dollar

The Australian Dollar is forecasted to move lower say Barclays who have given their assessment of yesterday's RBA decision.

A look at the currency markets on Wednesday morning show a broadly weaker Australian currency:

The pound sterling to Australian dollar exchange rate is 0.71 pct higher at 1.7358.
The euro to Australian dollar exchange rate is 0.57 pct higher at 1.4477.
The Australian dollar to US dollar exchange rate is meanwhile 0.56 pct lower at 0.9346.

(These are inter-bank market quotes, your bank will add a discretionary spread to the figures. However, an independent FX provider will guarantee to undercut your bank's offer, thus delivering more currency. Please learn more here.)

If you would like the latest views as to why the Australian dollar is under pressure today please see our morning Aus dollar snapshot.

Today we hear from the foreign currency team at Barclays who are forecasting a return to weakness for the Aus dollar.

Reserve Bank of Australia keeps rates on hold

The forecast comes a day after the RBA left the cash rate unchanged at a record low of 2.5%, while calling for a lower exchange rate.

The main takeaways from the press-release accompanying the RBA decision were:

1) the discussion of global financial conditions, where the RBA highlights the volatility stemming from the outlook for US monetary policy, was shortened;

2) the RBA noted the recent improvement in business and consumer confidence, saying it was “too soon to judge how persistent this will be”;

3) the reference to further stimulus to come from low interest rates was reworded;

4) the RBA obliquely referred to the boom under way in housing, noting “there is… continuing evidence of a shift in savers’ behavior in response to declining returns on low-risk assets”; and

5) the RBA was more explicit in calling for a lower AUD, saying, “a lower level of the currency… would assist in rebalancing growth” (this was previously phrased as it was “possible that the exchange rate will depreciate further… which would help to foster [the] rebalancing”).

The RBA again said policy was appropriate.  

Outlook for the Australian dollar points to weakness

Kieran Davies and Hamish Pepper    at Barclays say they forecast further GBP weakness:

"We still expect the AUD to head lower.

"Although the RBA would like a lower exchange rate, AUD/USD rallied immediately following the announcement, which likely reflects a degree of disappointment from market participants who were looking for stronger language around the currency in the context of the appreciation seen since the 3 September policy press release.

"Given the relatively weak domestic economic outlook in Australia, the RBA’s tolerance for a stronger currency remains low, in our view.

"If the AUD appreciates further, tightening monetary conditions, the market is likely to price a higher probability of further rate cuts, as the central bank becomes concerned about the downside risks to the non-mining sector.

"This factor will limit AUD gains from here, in our view. In the near-term, these negative factors will be largely offset by continued momentum in Chinese economic activity and some USD weakness in the context of Fed tapering being off the agenda until December.

"This combination will likely see AUD/USD trade flat over the next month before slowing Chinese economic growth and a strengthening USD push AUD/USD to 0.89 by year end."