Australian Dollar on Shaky Ground
The Australian dollar has been on a downward spiral since September, and experts warn that its decline is far from over. In fact, there’s a strong possibility that it will plummet below 60 US cents in the coming months.
Global Risk Sentiment Takes a Toll
The Aussie has been battered by deteriorating global risk sentiment and growing expectations that the Reserve Bank of Australia will be forced to cut interest rates. This perfect storm of negative factors has led to a 9.2% decline in the currency’s value last year, with a low of 61.79 cents on December 31.
Trade War Fears Loom Large
Another major concern is the prospect of a trade war between the US and China, Australia’s largest trading partner. If this scenario unfolds, it could lead to a further decline in the Australian dollar. According to Gareth Berry, a foreign-exchange and rates strategist at Macquarie Bank Ltd., “A slide all the way to 60 cents is conceivable in the risk case where US equities take fright at an unfolding global trade war.”
Key Support Levels in Sight
The first key support level for the currency is the October 2022 low of 61.70 cents. If this level is breached, it would mark the weakest point for the Aussie since the pandemic risk selloff in April 2020. With Australia’s November inflation data due to be released on Wednesday, there’s a possibility that the currency could test this level as soon as this week.
Central Bank’s Next Move
The minutes of the Reserve Bank of Australia’s December gathering suggest that the February policy decision is “live,” according to Richard Franulovich, head of foreign-exchange strategy at Westpac Banking Corp. This could lead to a rate cut, which would further weaken the Australian dollar.
Downside Risks Remain
Despite its recent slump, the Aussie has room to extend its losses. Franulovich predicts that the currency will end March at around 61 cents, citing its fragile hold on the 0.62 handle and failure to climb back above 0.6275.
Upcoming Economic Events
Next week’s main economic events include China’s Caixin services PMI, India’s 2025 GDP annual estimate, and Australia’s monthly CPI and retail sales data. These events could provide further insight into the direction of the Australian dollar.
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