Currency Forecast - AUD: Further Weakness Amid Structural Headwinds - AUG 2015


BMI View: Despite significant weakness already seen, we maintain a fundamentally negative outlook for the Australian dollar over the medium-term. A slowing economy due to an ongoing deterioration in the terms of trade picture, combined with a high level of external indebtedness will drive the Aussie lower against the US dollar towards USD0.700/AUD by end-2015 .

Short-Term Outlook (three-to-six months)

The Australian dollar is due for a near-term bounce against the US dollar as the unit is oversold and real interest rate differentials between Australia and the US have moved in favour of the AUD. That said, any rally will be short-lived, and we expect the Aussie to face stiff technical resistance at around USD0.7575/AUD, particularly as the Reserve Bank of Australia (RBA) stated that further AUD depreciation seems both likely and necessary, given the significant declines in commodity prices over the past year.

Room For Near-Term AUD Bounce...
Global - Spread of Australia Over US Inflation-Linked Bond Yields, % & USD/AUD
Source: BMI, Bloomberg

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