Australian dollar may have found a botttom

The Australian dollar has lost more than 5 percent against its US counterpart since the start of the year as worries over falling commodity prices and disappointing inflation figures took its toll on the currency but according to some analysts all is about to change.

The Aussie fell as low as US73c yesterday continuing its recent weakness as the market excludes the possibility of a rate hike anytime soon by the Reserve Bank of Australia with many predicting the first rate hike to happen in 2020.

Another reason for the recent losses may be risk aversion whereby trader avoid the riskier currencies due to political uncertainties such as the trade war brewing between the US and China and US President Trump’s introduction of tariffs against his closest allies.

"Australia is one of the big net debtors of the world. It owes the rest of the world around $1 trillion," from a combination of government, corporate and bank debt” said National Australia Bank currency strategist Ray Attrill

"Relying on the kindness of strangers means that Australia owes the rest of the world a lot more than they owe us," he said. "When risk goes off, the worry is that international investors are more inclined to keep their money at home" he added.

One analyst believes that investors are underestimating the current state of the Australian economy and as this becomes clear over the next few months the RBA will change towards a more hawkish tone.  

"Inflation, both headline and core, are just under the RBA’s 2-3% target band. The growth tailwind should nudge inflation gradually higher, and we expect the RBA to switch to a tightening bias before year-end” says Alvin Tan, a currency strategist at Société Générale.

“The market has underpriced the probability of RBA tightening, in our view, and so there is likely to be a boost to the Aussie dollar in coming months as the market pricing firms up," he added.


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