FILE PHOTO: Australian dollars are seen in an illustration photo February 8, 2018. REUTERS/Daniel Munoz/File Photo
SYDNEY: The Australian dollar has been on an upswing this month as the greenback weakens. But risks are building on the horizon.
The commodity-driven Australia faces headwinds as China’s growth continues to slow and easing domestic inflation undercuts the case for more interest rate hikes.
To make matters worse, this week’s US Federal Reserve review may bolster the greenback and add to the Australian currency’s woes.
“The Australia dollar-US dollar upside looks to be capped by investor scepticism over China’s growth prospects, which only intensified with the lukewarm second quarter gross domestic product data,” said Sean Callow, senior currency strategist at Westpac Banking Corp.
“There’s obviously uncertainty ahead of the Australian consumer price index, but the US dollar is set to emerge from the Federal Open Market Committee meeting in solid shape, slowing the upswing.”
Australia’s fortunes have taken a tumble as the boost from China’s reopening fades, with analysts’ forecasts for the currency to rise above 70 US cents (RM3.19) looking increasingly unattainable.
Talk of a Reserve Bank of Australia (RBA) rate cut is another dampener as the pass-through effect of higher rates on mortgages takes a toll on the Australian economy.
Australia’s currency fell 0.7% to 0.6729 US cents (RM3.07) on Friday after rising as high as 68.95 cents (RM3.15) this month. The currency has gained 1% so far in July.
June inflation data due tomorrow may help determine the Australian dollar’s near-term outlook.
A Bloomberg survey of economists predicts that consumer price gains eased to 6.3% in the second quarter from 7% in the previous three months on an annual basis, which is likely to undercut the case for more rate hikes.
Bloomberg Intelligence predicts that the RBA may start easing monetary policy in the first quarter of 2024 as the impact of previous rate increases filters through via variable-rate mortgages, which dominate Australia’s housing market.
If that’s true, that will spell more bad news for the Australian dollar. — Bloomberg
