Feb 21, 2012 update:
Joseph Capurso and Richard Grace of the foreign exchange team at Commonwealth Bank of Australia have conceded that their recent forecasts have been wrong.
They did not foresee that the ongoing sovereign debt crisis in the EU would have so little of a negative effect on global growth and therefore the commodities-linked Australian dollar.
The strategists have now amended their forecast for the exchange rate from $US0.95 in June 2012 to $US1.08 until September, and $US1.10 in early 2013.
AFR
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As we approach year-end the Australian dollar is hovering around parity. So armed with the clarity of hindsight we re-visit our selected analysts forecasts from back in May 2011, some of their predictions are doing better than others… So far Matthew Sherwood from Perpetual and Nigel Stapledon, UNSW are looking the most on the money correctly predicting an AUDUSD rate of around 99 cents. But given the volatility of the AUD this year, with a month to go any one of them may still be in with a chance.
Source for following predictions: Australian Financial Review May 7-8, 2011
Commonwealth Bank currency strategist Richard Grace says the local dollar will get to $US1.12 by September driven by the terms of trade boom, and by increasing interest from foreign investors in diversifying into currencies other than the greenback.
National Australia Bank John Kyriakopoulos is slightly more cautious. Although after its recent surge he upped his short term forecasts by as much as 4 cents, he believes the local dollar will fall to $US1.02 by year end. He says the currency appears expensive at $US 1.10, based on measures such as the terms of trade and the current account.
ANZ Bank says its official Australian dollar year-end forecast is $US1.03. It sees the currency at par with the greenback until at least July 2012 and says weakness in the US dollar is likely to persist owing to America’s low interest rates, large fiscal hole and ailing housing market.
JPMorgan economics team local currency year-end forecast of $1.04. It believes the underlying fundamentals appear strong, and the dollar will hold above parity until the end of 2012, when the US Federal Reserve is likely to begin raising interest rates.
Citibank analysts say the Australian Dollar is overvalued by about 6 per cent. they believe that while the currency may go higher in the short term, it is difficult to make the case to long-term investors for buying the dollar at present values.
Source for following predictions: ABC Lateline – Experts revisit AUD predictions, May 11 2011
Andrew Pease, Russell Investments We’re still fairly cautious about the outlook for the rest of the year and we do think it will end the year weaker, potentially below 90 cents.
And the reasons why we think that are the case by the end of this year, I think the markets will start to be looking at the timing of the first American rate rise, and also we think that commodity markets have probably run too hard and with China slowing we’ll see commodity markets come back quite a bit.
Nicki Hutley, KPMG We’ve already seen the ECB start to nudge up rates and sooner or later the Federal Reserve is going to have to get of its hands and do likewise. We are seeing quite pronounced recovery there and that will gather momentum and we all know the Fed is, if nothing else, very hawkish on inflation, so they will act.
And I think that will make a psychological change to the market, bring about that psychological change that will see a shift back down to 90 cents by the end of the year.
Besa Deda, St George Bank We’re looking for the Aussie dollar to finish the year at $1.02. That is a little bit lower than where it’s currently trading. The main reason is that we are forecasting slower growth in the Chinese economy and we do think that commodity prices will peak in the second quarter of this year. Also, interest rates in other major economies are starting to move higher or will start to move higher in 2012 and the currencies of those economies will start to price that in and that will pressure the Aussie dollar lower against these currencies.
Nigel Stapledon, UNI. OF NSW My feeling in the second half of the year is that the balance of news is – it’s a lot more even. I think there’s a fair probability that the news on the US will continue to get a little bit better, but it’s a little bit more problematic about China and the net balance of that could be slightly negative for the Aussie dollar. So, I’d be pretty comfortable with a forecast of around sort of 99 cents, a dollar.
Matthew Sherwood, Perpetual I continue to expect the Australian dollar will depreciate against the US down to around 99 US cents. And the reason for that is a very solid US recovery is brewing at the moment and core inflation in the US economy is clearly rising. And as a result, I tend to think that’s going to bring the US Federal Reserve out of its trenches earlier than market expectations.
Now, whilst being hawkish on the US Fed has not been a policy which has rewarded investors in the past six months or so, my suspicion is we’re seeing the clear signs of a very solid and sustainable recovery in the US, and because of that, the US dollar would be expected to rally.