In the latest Oliver’s Insights, Dr Shane Oliver looks at the outlook for the Australian dollar.
The key points are as follows:
- The closure of speculative short positions in the $A, a bounce in commodity prices, delays in Fred rate hikes and expectations in the next interest move by the Reserve Bank of Australia (RBA) is up, have stabilised the $AUD over the last year.
- However, the downtrend in the $A will likely resume as commodity prices remain subdued, the interest rate differential in favour of the $A narrows to zero and goes negative and as now-long speculative positions reverse. Expect a fall below $US0.70 by year end.
- Given the downside risks for the $AUD it makes sense for Australian investors to maintain a decent exposure to foreign currency via unhedged global investments.