(06 July 2020 – Australia) The exceptional level of market uncertainty stemming from COVID-19 rebound speculation is best reflected in wildly divergent Australian dollar forecasts issued by banks and corporate clients respectively.
Morgan Stanley predict the AUD/USD to appreciate to 73 US cents by December 2020 while Rabobank and JPMorgan expect the currency to weaken below 63 cents.
East & Partners latest global Business FX research reveals corporates hold an even more bearish forecast, aggressively dropping their end of H1 2020 forecast by over 10 cents from 0.668 to 0.563 for the end of H2 2020. This represents a record low FX forecast for the program, reflecting the growing level of risk aversion present. The currency currently continues to trade close to 70 cents as of early July 2020.
The Aussie Dollar rebounded strongly from a two decade low of 57 cents in March 2020 only to drift lower in recent weeks as a new surge in virus cases threatened hopes for a ‘V’ shaped recovery. Further gains are contingent on firmer commodity prices and a recovery in Chinese economic activity. Australian iron ore exports hit an all-time record of 82 million tonnes in June 2020, up from 77 million tonnes month-on-month. Port Hedland recorded a fresh record of 51 million tonnes with overall exports up six percent month-on-month and six percent year-on-year.
“The biggest factor driving the risk-sensitive Aussie will be the performance of the global economy. We see the currency dropping to 64 cents by year-end and particularly the ability to vindicate the rapid recovery in risk assets” said JPMorgan Senior Economist, Ben Jarman.
“Going forward you’ll have periods of risk on and risk off that will impact the Aussie. We are predicting the Aussie will end the year at 70 cents. And in those periods of risk off, there’ll be an opportunity to increase your hedging levels and reduce your foreign-currency exposure” stated Insight Investment Specialist, Adam Kibble.
“We see further upside through to the end of the year, with the Aussie comfortably rising above 0.72 cents in the most likely scenario of a ‘swoosh-shaped’ global growth recovery. Still, the currency’s rise won’t be smooth, especially if any of the major economies re-impose a lockdown” said Monex Europe Head of Market Analysis, Ranko Berich from London.
“Australian May merchandise trade data was to be expected but highlights how dramatic the collapse in imports has been as a key driver of the improvement in Australia's trade position. Compared to December last year, exports are down 12 percent and imports are down 23 percent” commented Westpac Head of Research, Robert Rennie.
“It’s really hard to argue the Aussie is overvalued” stated Reserve Bank of Australia (RBA) Governor Philip Lowe.