Australian dollar rally to be short lived

Financial and commodity markets analytics

The Australian dollar is heading for its 6th straight day of gains in today’s trading session against its US counterpart which began last week as expectations grow that the US Federal Reserve is on the verge of cutting interest rates.

The prospect of lower interest rates in the US are helping currencies such as the Aussie dollar but some say this won’t be enough to support the currency and its only a matter of time before it resumes the downtrend.

Craig Vardy, head of fixed income at BlackRock, the world's largest asset manager says any rate cut delivered by the Fed will be offset by further rate cuts from the RBA and may see the Australian dollar hit US65

"I've no doubt that the RBA wouldn't have an issue taking the cash rate below 1 per cent," Vardy said.

“The central bank wants to see lower unemployment and higher inflation and is probably willing to push a little harder to get some traction," he added.

The reason Mr Vardy said, behind further rate cuts is the persistently low inflation figure which are currently sitting well below the RBA’s target rate and a dire housing market which is only set to get worse and lower rates are seen as one of the instruments to breathe life back into the property market.

"House prices and apartment prices are still way too high, so I think there will be an ongoing adjustment. We've had a short-term boost to sentiment from the Liberal government re-elected. The issue here is really demand for credit. We can't see that picking up in the near-term, despite the RBA cutting rates" Mr Vardy said.


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