Prospects for the Aussie dollar.

[Moo]

Will jump to around 85c by end of January.
Interest rate cuts are over market will stabalise.

I would be shocked if this is true.

 

[utility]

Will jump to around 85c by end of January.
Interest rate cuts are over market will stabalise.

Rate cuts will drive the dollar lower, not higher. I'm not sure what rationale you use to think it will strengthen the dollar.

 

[A Living God]

Rate cuts will drive the dollar lower, not higher. I'm not sure what rationale you use to think it will strengthen the dollar.

He doesn't, I assume he means the exchange rate will appreciative because the RBA have finished cutting the interest rates.

 

[buddymania]

He doesn't, I assume he means the exchange rate will appreciative because the RBA have finished cutting the interest rates.

I probably should have phrased it better

 

[FunkyFreo2]

if we are at 85c or better it will be because the USD has crashed, not because things have "stabilised"

 

[utility]

He doesn't, I assume he means the exchange rate will appreciative because the RBA have finished cutting the interest rates.

My mistake, though I suspect there are further cuts to come unless the RBA needs to protect the falling AUD.

 

[Eagle87]

My mistake, though I suspect there are further cuts to come unless the RBA needs to protect the falling AUD.

Its a tricky one for the RBA, stimulate the economy with rate cuts and witness massive amounts of foreign investment leaving the country...see the dollar drop and watch more foreign money leave... we need a reasonable interest rate differential to keep foreign investors here... a collapsing dollar means less foreign money here and a bigger liquidity hole to fill in tough credit markets...

 

[medusala]

Will jump to around 85c by end of January.
Interest rate cuts are over market will stabalise.

I will write you a call if you like.

 

[DeadlyAkkuret]

Up to .70 at the minute. Does anyone think it'll reach .75+ by Christmas or is it more likely to drop?

 

[Clay Davis]

If the RBA don't meet and cut in January expect it to rise against the USD. Or more specifically, expect the USD to crash.

 

[Eagle87]

A bit of an update and forecast on currencies including US and $A. No certainty that the US collapse is permanent or sustained yet (China's warning yesterday was interesting though).

From RGE Monitor yesterday:

Does the U.S. dollar’s December slide mean the USD has passed its peak? Most likely not. The turn-of-the-year profit-taking on long USD positions creates a near-term blip in the dollar's uptrend but doesn't alter the medium-term trend of appreciation versus the euro. The four horseman of the carry trade apocalypse - Deleveraging, Risk Aversion, Growth Differentials and the Dollar's Reserve Currency Status - would need to retreat before we see a sustained pullback in the EUR/USD from the slide to near-parity ($1.10-$1.30). Governments, banks and other firms are still scrambling for dollars to repay their USD-denominated debt while signs of global recession and credit crisis spur on the flight-to-safety in U.S. Treasuries. European sovereign bonds offer an alternative but inferior safe haven because of the European bond market’s fragmentation and exposure to emerging Europe. More aggressive policy response in the U.S. compared to Europe, could bring the U.S. out of a recession faster than the Eurozone (though growth will most likely remain subdued for some years to come), supporting the dollar against the euro. In the longer term, however, once risk appetite revives, the greenback might lose its defenses in wake of worries surrounding U.S. public debt expansion and the potential inflationary effect of quantitative easing.

The Japanese yen hit a 13-year high against the dollar in mid-December when it broke below 90 per dollar. It may hold the distinction of being the only currency apart from the Swiss Franc that could appreciate against the dollar in early 2009 due to carry trade unwinding and repatriation of Japanese funds invested overseas. The recent surge in the yen is being driven by carry trade unwinding as well as a substantial shrinkage in US-Japan rate differentials. While there is room for the JPY to strengthen in the short-term, Japan’s increasingly gloomy macroeconomic outlook raises questions about its continued strengthening over the medium-to-long term.

The rest of Asian and the Pacific currencies are losing ground against the dollar. Faced with slowing growth and exports as well as withdrawal of foreign capital, many Asian currencies have fallen against the dollar, with those with current account deficits like South Korea and India hardest hit. Despite central bank intervention, the currencies of India, S. Korea, Thailand, Philippines, Indonesia have depreciated recently as global risk aversion contributed to outflows from EMs.

Declines of around 20% for these currencies may have contributed to some slackening by Asia’s other strong currency, the Chinese yuan. After appreciating against the dollar at the beginning of 2008, and tracking it closely through spring, summer and most of the fall, the yuan is now depreciating slightly against the dollar as Chinese growth slows and the Chinese try to temper the 25% appreciation against the Euro since mid 2008. Last weekend’s powwow between China, Japan and Korea which followed the Japanese and Chinese extension of credit lines to support the Won, may be the first step in greater exchange rate coordination within Asia and may help to support some faltering Asian currencies at least in the short-term. Meanwhile the dollar’s rally is putting the Hong Kong dollar under pressure when Hong Kong is in recession, despite the strong support for its peg from authorities.

The Korean won has been victim of the selloff of emerging market assets in an environment of acute risk aversion. South Korea gives the world an example of a net creditor in a currency crisis. The won’s downfall also has its roots in Korea’s high ratio of short-term external debt to foreign reserves (60% at end-2007). After international capital markets essentially shut down, Korean banks and firms have sought dollars to repay their external debt or sell off assets to do so – raising demand for USD versus KRW. This deleveraging, plus the export slowdown and portfolio outflows from Korean equity and debt markets, might keep the won weakening versus the USD until late 2009. The current account will likely improve if commodity prices remain low and import demand falls, but capital outflows will outweigh the effect of the current account surplus on the won.

Free floating commodity currencies like the Australian, Canadian and New Zealand dollars and the Norwegian Krone have followed their commodity exports values down - together the fall in commodity prices and currency corrections of 20-30% have eroded their terms of trade. Despite the chance that they may already have overcorrected, with further rate cuts to come, these currencies could slide further. And so might the South African rand, especially now that the Reserve Bank has joined the cutting cycle. But these currencies might not gain much from any prolonged dollar weakness unless commodities pick up much steam as all of these economies are facing sharp slowdowns at best and recessions at worst.