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.
“We are lifting our US dollar forecasts to reflect the likelihood of a stimulatory tax package getting passed by Congress, stronger US Gross Domestic Product growth, our higher forecast Federal Reserve funds rate, and a re-emergence of monetary policy divergence with the European Central Bank,” the report said.
Despite the change in forecast, it’s been a strong year for the Australian dollar. On the second of January the Australian dollar was worth 71.84 US cents, but by 8 September it was up to 80.60 US cents. More recently it has slipped back under 80 US cents.
Following the Reserve Bank of Australia’s decision to keep the official cash rate on hold at 1.5% on Tuesday 7 November, the Australian dollar dropped to 76.45 US cents.
The upcoming decision on tax reform in the US may continue to impact forecasts for 2018.
“While we don’t know final details of the tax package, cuts to the US company tax rate are supportive for the US dollar. Further, US dollar forecast changes may occur once we know the details of the final US tax package,” said the report.