According to Capital Economics’ research, the Australian dollar (AUD) is expected to hit US 60 cents in 2019.
The Australian dollar has been hovering around US 70 cents, but experts warn weaker local economic data combined with more interest rates increases from the USA’s Federal Reserve will put
“We have changed our view of the future direction of interest rates there as we now think that the ongoing downturn in the housing market will deepen, causing GDP growth to fall below potential,” Simona Gambarini from Capital Economics told clients.
The researchers believe Australian interest rates might actually fall before they go higher, despite being at a historic low of just 1.5%.
“In light of this, we think that interest rates are more likely to fall than to rise in 2019 and 2020,” Gambarini wrote in a note to clients.
As we reported here, falling Australian house prices have had a negative ‘wealth effect’ on consumers, which is leading some economists to fear a slowdown in consumer spending and lower-than-expected inflation.
This is combining with global economic uncertainty, especially from China, and a pullback in the prices of key commodities.
“We expect especially large falls in the prices of iron ore and coal, which together account for 30 per cent of Australia’s exports,” Gambarini added.
Overnight, sales data from computer chip maker NVIDIA Corp and mining business Caterpillar Inc reinforced the negative outlook for Chinese growth.
“Caterpillar and Nvidia are not the first companies to blame China for their afflictions, but both companies are seen as industry bellwethers and their disappointing results provide further evidence that this time China’s slowdown is for real,” NAB’s Senior FX Strategist, Rodrigo Catril says.
Whatever happens from here it’s clear there will be many winners from an Australian dollar decline, but also many losers.
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