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Outlook for the Australian dollar

Outlook for the Australian dollar

The Australian dollar looks vulnerable to further weakness short term, but is not heading back to 2001 levels below 50 US cents, according to CommBank currency strategists.

The Aussie dollar (AUD) is currently buying around 75.85 US cents (USD) today, having dropped from a high this year of around 80.50 US cents in September.

CommBank currency strategists note that for the past 20 years, a flatter US yield curve has been associated with a lower AUD against the USD.

“Adding to some of the downside pressure on AUD/USD is the fact that the Australia-US two-year bond spread has declined to just 9bpts, its lowest level since March 2001," they said. "During this time, AUD/USD traded below 0.5000 (50 US cents).”

If AUD/USD declines another cent, it will be testing long-term technical support around 74.73 US cents.

"In the near-term, the prospect of a US fiscal tax package worth US$1.5 trillion over 10 years, and more specifically adding an extra 0.3% to US GDP growth over 2018 and again in 2019, is lifting Fed Fund futures and supporting a rise in the USD.

"We anticipate the USD will remain firm into year-end as Congress debates the details of the US tax package, in particular, the prospect of a cut to the US corporate tax rate."

AUD longer-term forecast

The team said that over the longer-term, "more specifically, 2018, we are more optimistic on AUD/USD strength because of a strong global economy, a modest upward trend in commodity prices, and a healthy Australian economy".

The team recently raised its US dollar forecasts.

The Australian dollar is expected to be at 78 US cents by December 2017 and 83 US cents by December 2018, according to the latest report from CommBank currency strategists.

Previously, the forecast had been 80 US cents by December 2017 and 85 US cents by December 2018.

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. As the information on this page has been prepared without considering your objectives, financial situation or needs, you should, before acting on the information, consider its appropriateness to your circumstances. Investors should consult a range of resources, and if necessary, seek professional advice, before making investment decisions in regard to their objectives, financial and taxation situations and needs because these have not been taken into account. Past performance is not an indication of future performance.