Australian dollar headed below US70c
Published on 04.10.2018 16:56

The Australian dollar is still reeling today after yesterday’s disastrous real estate raised speculation that the Reserve Bank of Australia may have to slash interest rates further in order to stop the carnage.

The latest building approvals figure hit the market yesterday at -13.6% which was well below the figure expected of -2.5 percent, and continues on from last month’s disappointing numbers which came in at -5.6 percent.

Some say the only way out of this mess is for the RBA to cut rates which would be the only way to breathe some life into the housing market and in general revive the Australian economy overall.

Interest rates in Australia are already 75 basis points below that of their US counterpart which is a level not seen in almost 3 decades and with the US Federal Reserve set to lift rates further and the RBA potentially delivering a further rate cut, the difference looks set to widen.

This would be devastating news for the Aussie dollar which was once a market favorite for the carry trade because of its attractiveness with higher yields, but with those days long gone the chances of a fall below US70c in the not too distant future is growing by the day.

There's"one direction for the Aussie against the greenback - and that's down," said Nick Twidale, Sydney-based chief operating officer at Rakuten Securities,

"It's more a case of how far will it go and some of that will depend on how the current global trade concerns pan out." He added

Problems with emerging markets such as China and South Africa among other will also take their toll on the Australian dollar and if the trade war continues between the US and China over tariffs, this may be the trigger for a further selloff.

"The message is fairly clear, if we are not out of the woods regarding pressure on emerging markets, not just from the likely scaling up of US tariff actions on China but also rising US rates and potentially higher USD/EM Asia FX. The AUD is equally not out of the woods in terms of risk of returning to retest post-2014 cycle lows below US70¢," said NAB head of FX Ray Attrill.


Andrew Masters

Analyst

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