(Bloomberg) — The Australian dollar slid the most in six years in 2024 but its decline looks far from over — there’s every prospect it will fall below 60 US cents in coming months.
Most Read from Bloomberg
The Aussie has been battered since the end of September by deteriorating global risk sentiment and growing expectations the Reserve Bank of Australia will be compelled to start cutting interest rates. Another negative is looming in the prospect of a trade war between the US and China, Australia’s largest trading partner.
“A slide all the way to 60 cents is conceivable in the risk case where US equities take fright at an unfolding global trade war, China’s fiscal counter-stimulus is inadequate, and the RBA is forced to cut quickly to lend support,” said Gareth Berry, a foreign-exchange and rates strategist at Macquarie Bank Ltd. in Singapore.
The Aussie tumbled 9.2% last year, touching a low as 61.79 cents on Dec. 31, before recovering marginally to end last week at 62.16 cents. The first key support level for the currency is the October 2022 low of 61.70 cents, a break of which would put it at the weakest since the pandemic risk selloff in April 2020.
A test of 61.70 cents is possible as soon as this week if Australia’s November inflation data due Wednesday comes in below market expectations, boosting bets on an RBA rate cut at its next policy decision on Feb. 18.
The minutes of the central bank’s December gathering published on Christmas Eve included language that could be interpreted as meaning the February decision is “live,” according to Richard Franulovich, head of foreign-exchange strategy at Westpac Banking Corp. in Sydney.
The minutes tabled the potential for “relaxing the degree of monetary policy tightness,” and in a separate section added that additional information on the labor market, inflation and expenditure would be available by the time of the February meeting, he said.
The Aussie has room to extend losses, even after its 10% slump last quarter, and is likely to end March at about 61 cents, Franulovich said.
The currency limped “through thin year-end markets with a fragile toehold on the 0.62 handle,” and its failure to climb back above the level of 0.6275 “keeps the focus squarely towards ongoing downside,” he said.
