Analysts are predicting a post-crisis low of AUD/USD at 66 cents by the end of the year.
Currently at 71c, the Australian dollar is expected to drop to 66c by the end of the year.
Declining business conditions, soft consumer spending and a slowing housing market are driving the drop.
Rate cuts are expected as a result of these flagging indicators, so the AUD can "act as a shock absorber for the rest of the economy."
The Australian dollar took a beating in 2018 and there's more where that came from, HSBC currency strategist Tom Nash predicts. He points at deteriorating local economic factors, and suggests that reactive approaches from the RBA will leave the Aussie dollar bearing the brunt of the fallout from a potential credit crunch.
"While the risks around [factors outside of Australia] appear to have receded for now, this may be masking the growing risks from the second, which is gathering momentum and deserves more attention," Nash said. "The deceleration in the flow of housing credit has been evident since at least early 2018 but has only recently come into focus due to a flurry of weakness in indicators of domestic demand."
"[These indicators include] a weaker-than-expected Q3 GDP print, the biggest monthly drop in surveyed business conditions since the Global Financial Crisis, a 22.5% year-ended fall in building approvals and monthly retail sales that turned negative in December, confirming two soft quarters of consumer spending," Nash says.
But despite the woes of trouble in last year, sentiment may have taken time to catch up.
"[The RBA] will acknowledge the economy is weaker than when it last met and will signal a change in bias towards an easing," said Stephen Koukoulas, managing director at Market Economics. "It may wait a month or two before acting on that bias."
"In the case of a credit squeeze, the labour market tends to be a lagging indicator, suggesting a proactive easing of policy is unlikely," Nash says. "Instead, more of the initial burden may end up falling on the currency to act as a shock absorber for the rest of the economy."
The need to drive domestic growth means AUD won't be winning any beauty contests this year.
Anticipated rate cuts of 25 basis points before the end of the year have already been priced into today's 71c AUD, Nash says, but he believes there's more to come.
"In the ugly contest of G10 FX, we still think the AUD looks unattractive versus the higher carry and reserve currency status of the USD," he says. "Our forecast remains for AUD/USD to trade down to post-crisis lows of 0.6600 by year-end."
How likely would you be to recommend finder to a friend or colleague?
Very UnlikelyExtremely Likely
Thank you for your feedback.
Our goal is to create the best possible product, and your thoughts, ideas and suggestions play a major role in helping us identify opportunities to improve.
Important information about this website
finder.com.au is one of Australia's leading comparison websites. We compare from a wide set of major banks, insurers and product issuers.
finder.com.au has access to track details from the product issuers listed on our sites. Although we provide information on the products offered by a wide range of issuers, we don't cover every available product. You should consider whether the products featured on our site are appropriate for your needs and seek independent advice if you have any questions.
Products marked as 'Promoted' or "Advertisement" are prominently displayed either as a result of a commercial advertising arrangement or to highlight a particular product, provider or feature. Finder may receive remuneration from the Provider if you click on the related link, purchase or enquire about the product. Finder's decision to show a 'promoted' product is neither a recommendation that the product is appropriate for you nor an indication that the product is the best in its category. We encourage you to use the tools and information we provide to compare your options and find the best option for you.
The identification of a group of products, as 'Top' or 'Best' is a reflection of user preferences based on current website data. On a regular basis, analytics drive the creation of a list of popular products. Where these products are grouped, they appear in no particular order.
Where our site links to particular products or displays 'Go to site' buttons, we may receive a commission, referral fee or payment.
We try to take an open and transparent approach and provide a broad based comparison service. However, you should be aware that while we are an independently owned service, our comparison service does not include all providers or all products available in the market.
Some product issuers may provide products or offer services through multiple brands, associated companies or different labelling arrangements. This can make it difficult for consumers to compare alternatives or identify the companies behind the products. However, we aim to provide information to enable consumers to understand these issues.
Providing or obtaining an estimated insurance quote through us does not guarantee you can get the insurance. Acceptance by insurance companies is based on things like occupation, health and lifestyle. By providing you with the ability to apply for a credit card or loan we are not guaranteeing that your application will be approved. Your application for credit products is subject to the Provider's terms and conditions as well as their application and lending criteria.