FXStreet (Delhi) - Bill Evans, Chief Economist at Westpac, expects that the AUD is still likely to be back near USD 0.68 by year's end and fall further to USD 0.66 in the first quarter of 2016.
“It is currently around USD 0.725 and is looking strong. However we are sticking with our view for a number of key reasons. These are mainly around the Fed; commodity prices and Australia’s chronic external deficit.”
“Markets remain in denial about the Fed. Current market pricing is for a 25% chance of a rate hike in December and only two hikes in total by the end of next year. With our expectation of a move in December, markets will have to quickly reprice the profile for the course of 2016.”
“Weaker commodity prices and a narrowing interest rate differential with the US are a reliable combination to push the AUD lower.”
“A third factor is the ugly trade deficit, which is driving a deterioration in Australia’s broader external balance, which is also a key variable in our fair value model.”
“While we expect most of this damage to the AUD to occur in the 6 months to March next year markets are likely start to reassess the 100% probability of an RBA rate cut by next March. That will provide some support for AUD but the major damage is likely to already have been done.”