If you thought you had seen a bottom in the Australian dollar when it hit a 10 year low by falling to US68c recently you may need to think again according to one analyst who claims that the currency may be headed to US60c as lower interest rates and Falling Iron ore prices take their toll on the economy.
The reason given is because the Reserve Bank of Australia will be forced to cut interest rates in order to shore up the Australian economy and will make the Aussie dollar even less attractive as an interest bearing investment and also make Australia one of the only countries to reduce interest rates at a time when most central banks are raising rates,
"Given the shift in risk factors over the past couple of months the local rate market is correctly concluding that it's worth spending a few basis points to hedge against a move," said Sean Keane at Triple T Consulting.
"Our expectation is that the RBA will resist cutting for as long as possible," he added "We think the most likely timing for that will be at the November Board meeting." He added.
Imona Gambarini from Capital Economics believes that Iron ore, Australia’s biggest commodity is in for a tumble this year which will hit the Australian economy hard, and in turn drag down the Aussie dollar as much as 12 percent from current levels.
"We have changed our view of the future direction of interest rates there as we now think that the ongoing downturn in the housing market will deepen, causing GDP growth to fall below potential," she wrote
"We think that they will generally decline this year as China's economy, which is a major trading partner of Australia, slows further. We expect especially large falls in the prices of iron ore and coal, which together account for 30 per cent of Australia's exports." She added.
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