In the backdrop of today’s call by Morgan Stanley that the AUD/USD will fall to 67c in 2018 and then to 65c in 2019, it’s interesting to analyze where the price is now leading into 2018. The Australian dollar has fallen from the great height of 81c reached in September to be at now around 75c per US dollar. The fall was generally expected as the macroeconomic risks coupled with declining commodity prices produced large headwinds for Australia’s economic outlook.
Although its stock market is at near highs, many economists and analysts are asking foreboding questions about the economy, including the RBA which may be surreptitiously disappointed by the lack of wage growth despite a reasonably healthy declining unemployment rate, and has not given any indication of interest rates changes in the near future. With the USD rising in value while the Fed proceeds with its monetary policy tightening program, I’m inclined to agree with Morgan Stanley (NYSE:MS).
The approaching AUD level somewhere around 0.745 to 0.5 should determine the future for the Australian dollar for the coming months. If it were to break below the indicated support, the next level of support would be somewhere in the low 70s. Should it manage to bounce up from it, we’ll have to wait a little longer to see the price in the 60s… sometime mid-2018. It seems the central bank of New Zealand is far closer to raising rates than their counterparts in Australia.
The same analysis is true for the New Zealand dollar which has dropped even more dramatically from a 0.75 handle to 0.68. The New Zealand dollar and the Australian dollar are highly correlated though I would vouch to say that as the NZ economy is in far better shape than the Australian one,the worst is over for the Kiwi. The NZ dollar might continue to fall to the indicated descending trend line, though I believe it may consolidate around the current area for a while. Should it fall further, it would need to break this support in which case it is likely to settle somewhere between 0.62 and 0.65 in 2018/2019. And if this eventuates, the aussie and kiwi may find themselves at parity.
