The Australian dollar looks set to test the US70c mark over the coming days and if this breaks we may even see the currency make a new 10 year low and with more analysts predicting that the RBA will need to cut interest rates in order to shore up the Australian economy, the scenario looks more likely.
Interest rates in Australia are already 75 basis points below that of their US counterpart which is a level not seen in almost 3 decades and with the US Federal Reserve set to lift rates further and the RBA potentially delivering a further rate cut, the difference looks set to widen.
This would be devastating news for the Aussie dollar which was once a market favorite for the carry trade because of its attractiveness with higher yields, but with those days long gone the chances of a fall below US70c in the not too distant future is growing by the day.
“There's one direction for the Aussie against the greenback - and that's down," said Nick Twidale, Sydney-based chief operating officer at Rakuten Securities,
"It's more a case of how far will it go and some of that will depend on how the current global trade concerns pan out." He added
Problems with emerging markets such as China and South Africa among other will also take their toll on the Australian dollar and if the trade war continues between the US and China over tariffs, this may be the trigger for a further selloff.
"The message is fairly clear, if we are not out of the woods regarding pressure on emerging markets, not just from the likely scaling up of US tariff actions on China but also rising US rates. The AUD is equally not out of the woods in terms of risk of returning to retest post-2014 cycle lows below US70¢," said NAB head of FX Ray Attrill.
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