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Analysts predict AUD to sink despite market buoyancy


Pointing at the week ahead, analysts remain unconvinced by the Aussie dollar's optimistic trades.

  • The Australian dollar enjoyed a rise on Monday, coming up to its highest point since 6 February.
  • The optimistic markets stand in contrast to experts predicting bearish downsides.
  • Analysts are calling out an expectation of further rate cuts as a key factor.

After falling down to 0.7077 against the greenback last Friday, the Australian dollar has recouped its losses and then some in Monday's Asia trading session, to finish at 0.7139 by the close, riding to its highest point since the solidifying of a record low 1.50% cash rate on 6 February, and an indication of further cuts to come.

But many traders aren't expecting it to last, and a lot of eyes are going to be on the economic news of the next week.

"The coming week will bring plentiful Australian economic news, most notably on the employment front where job-creation has long been strong," notes David Cottle for DailyFX. "Purchasing Managers Indexes are also coming up. However, the end of the week will bring parliamentary testimony from RBA Governor Philip Lowe. This will bear watching."

The industry opinion has swung towards expectation of a central bank rate cut next month, with 60% of surveyed experts now anticipating further drops.

The sentiment is echoed widely by various signals.

RBA Assistant Governor Christopher Kent, speaking at a foreign exchange conference in Melbourne last Friday, outlined some of the benefits of a weaker Australian dollar.

"While the exchange rate is still within the relatively narrow range of the past few years, the recent depreciation is helpful at the margin given that there remains spare capacity in the economy and inflation remains below target," he noted.

In essence, the Australian dollar is doing its job as a shock absorber for concerns in the housing market and other indicators. Experts are expecting Lowe to take a similar stance, but it's not clear whether the market has priced it in.

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