(1 July 2018 – Australia) In response to the strengthening US Dollar, Australian Dollar (AUD) forecasts have been lowered by bank economists and fall in line with corporates expectations of a weakening of the AUD in 2018.
The Aussie Dollar fell to its lowest level since Q1 2017 and the New Zealand dollar (NZD) slid to its lowest level since Q2 2016. In Q2 2018 the value of the USD rose over five percent against the UK Pound Stirling and Kiwi Dollar. It also appreciated by up to five percent against the Euro, AUD, Japanese Yen (JPY) and Swiss Franc (CHF).
East & Partners Business FX program captured currency forecasts from 2,363 importers and exporters for H2 2018 across key currency pairs including the GBP, EUR, RMB, USD and NZD with all currencies expected to depreciate from current trading levels by between four to ten percent with the exception of the NZD which was forecast to appreciate by four percent. Corporates maintain their pessimistic view of the AUD made earlier this year, headlined by smaller businesses predicting a more precipitous fall in the Aussie Dollar compared to larger corporates.
Concern towards the brewing trade war between the US and China are unleashing fresh waves of volatility and uncertainty on central bank interest rate decision making, commodities and most notably FX. Australian Productivity Commission modelling has suggested that if a trade war becomes a reality and leads to a 15 percentage point rise in tariffs, triggering a global recession, global trade volumes would decline by 22 percent, global output would drop by three percent and global capital stock would shrink by five percent.
However, that same modelling points to a one percent cut to GDP in Australia. HSBC Chief Economist for Australia, New Zealand and Global Commodities, Paul Bloxham, said changing US-China trade policies could present Australia with an opportunity. “If China seeks to shift away from US imports, it could increasingly seek to import knowledge, energy, hard commodities and tourism services, as well as export capital, to Australia,”
“Small, open economies are clearly at particular risk if the trade war continues to escalate, regardless of where the epicentre of the war sits, and the portents are not constructive,” said ANZ's chief economist Richard Yetsenga. “Of course we are worried about a trade dispute. The three largest economies in the world have imposed tariffs on each other, some are already talking about non-tariff measures, and other economies such as India and Canada have responded.”