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Forecasts for Aussie, kiwi cut, but gains still seen by end-2019: Reuters poll

Forex Jan 08, 2019 10:00PM ET
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© Reuters. Illustration photo of Australian dollars

By Swati Pandey

SYDNEY (Reuters) - Forex analysts have lowered their forecasts for the Australian and New Zealand dollars from a month earlier but still see them bouncing modestly by the end of 2019, a Reuters poll showed, with uncertainties rife amid the Sino-U.S. trade battle.

A Reuters survey of up to 53 analysts saw median predictions for the Aussie at $0.7100 on a one-month horizon, from $0.7285 in the previous poll and current levels of $0.7140.

Analysts also marginally lowered their projections for 3 and 6 months to $0.7200 from $0.7300 earlier. They see the Aussie at $0.7400 by December, compared with previous expectations of $0.7500.

An indication of the uncertainties playing on investors' mind is the broad range of forecasts, from as low as $0.6600 to as high as $0.8200 on a 12-month horizon.

The survey comes amid renewed downward pressure on the Australian currency, which shed nearly 10 percent in 2018, and hit a near-decade low of $0.6715 last week, driven by a computer-led "flash crash".

The trade-exposed currency has been used by investors to wager on, or hedge against, tensions in emerging markets and the risks to the Chinese economy from U.S. tariffs.


Analysts say a resolution in the trade dispute would boost the Aussie.

"The single most important event risk for all things AUD in coming weeks is the fate of U.S. and China trade talks," said Ray Attrill, currency strategist at National Australia Bank.

"These need to yield agreement to a reasonably comprehensive deal as a minimum prerequisite for a recovery in global risk asset sentiment and a stronger AUD," he added.

"We have lately become much more hopeful of this being realized, given that both sides now have big incentives to strike a deal."

A run of disappointing data and recent falls in stock markets in the United States and China have led some investors to believe the two nations will come to a resolution. Hopes have been boosted by the extension of current trade talks in Beijing into an unscheduled third day on Wednesday.

Also, underwhelming economic data at home has led investors to start pricing in a small chance of a rate cut by mid-2020 even though the Reserve Bank of Australia (RBA) has repeatedly stated the next move in rates would be up.

Given slowing global growth, financial stress and trade tension, "it seems unlikely that the A$ should trade much above the midpoint of our fair value range i.e. much above 0.73," Westpac strategist Robert Rennie said in a note on Wednesday.

Westpac's forecasts of some tightening by the U.S. Federal Reserve in 2019, no change in the RBA's policy and weaker commodity prices "point to the lower end of the fair value range dropping below 0.70 through 2019."

Only a handful of poll participants joined Westpac in forecasting a fall under $0.7000. ANZ sees the Aussie at $0.6800 in three months and $0.6700 in six.

Saxo Bank and Singapore's DBS too are bearish on the currency, while BofAML and Credit Agricole (PA:CAGR) CIB are among the most bullish.

For the kiwi , analysts nudged their near-term forecasts lower but see it rising to $0.7000 by year-end, compared with about $0.6730 on Wednesday morning.

They see the currency stuck at $0.6700 in one, three and six months' time, according to the median of up to 46 forecasts.

To be sure, some analysts see substantial downside risks. For six months ahead, forecasts stretch as low as $0.6000.

The kiwi stumbled in 2018, shedding more than 5 percent against the U.S. dollar, although better-than-expected domestic data has helped cap losses.

(Other stories from the global foreign exchange poll:)

Forecasts for Aussie, kiwi cut, but gains still seen by end-2019: Reuters poll

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