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2013 FX Forecast: Australian Dollar To Weaken Steadily Against US Dollar Print E-mail
Special Reports | Written by | Jan 21 13 06:29 GMT

2013 FX Forecast: Australian Dollar To Weaken Steadily Against US Dollar

We expect AUDUSD would steadily weaken this year. While quantitative easing by the Fed has kept the currency pair above parity for most of the time last year, fundamental weakness in Australia should lead to further monetary easing by the RBA. This would in turn deteriorate the attractiveness of Australian dollar amid narrowing of yield differential. Our forecasts for AUDUSD are 1.03, 1.01, 0.99 and 0.97 for 1Q13, 2Q13, 3Q13 and 4Q13 respectively.













The Australian economy expanded +0.5% q/q in 3Q12, compared with +0.6% growth a quarter ago. As mentioned in the December RBA minutes, growth ‘expanded at around trend” during the quarter as driven mainly by mining investment. There were also tentative signs that dwelling investment was turning up, but the outlook for non-mining investment overall in the year ahead remained subdued.

Headline CPI accelerated to +1.4% q/q in 3Q12, up from +0.5% a quarter ago. On annual basis, inflation gained +2.0% after a +1.2% rise in 2Q12. The acceleration was driven by the introduction of carbon tax on July 1. Concerning international trade, Australia’s trade deficit widened to AUD 2.6B in November from 2.4B in the prior month. The deterioration in trade data was due to the fact that the rise in exports was offset by that of imports. Although the recovery in Chinese economy might be helpful for Australia’s trade, policymakers are likely cautious on the issue.

Despite a rate to 3% in December, Australia’s interest rates remained the highest among other AAA-rated countries. This has lent support to investment in Australian assets despite its fundamental deterioration. Therefore, the Australian dollar has been support. For 2013, we expect the RBA to ease further to bolster the economy. At the latest meeting minutes, the RBA unveiled that “the peak in resource sector investment was near, and that the short-term outlook for non-resource investment remained subdued, indicated that there was a case for the Board to provide that support”. RBA’s rate cut in 2013 is expected to pare the attractiveness of Australian dollar against other currencies in terms of rate differentials.

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