Australian dollar poised to head lower

The Australian dollar has made somewhat of a recovery against its US counterpart of the last 2. Trading sessions as expectations grow that the US Federal Reserve will cut interest rates within the next few months in order to contain the fallout of the failed trade deal between the US and China.

Some say that more than one rate cut will need to be delivered in order to help the situation and this is likely to weigh on the greenback.

“The move lower in US yield weighted on the US dollar Index with a repricing in Fed expectations now seen the chances of a 25 basis point rate cut fully priced by September while a cumulative 54.3 basis points of cuts are now expected by December,” said Rodrigo Catril, senior FX strategist at the National Australia Bank.

Other analysts however are not so confident the potential rate cuts will help the Aussie dollar and that the trade wars between the two world super powers are likely to hurt the Australian economy more and could see the currency as low US65c by the end of the year.

 With trade tension escalating and the likelihood of a resolution dimming, we think the external environment will shift from being an offset to soft domestic conditions to becoming a headwind. We don’t think the AUD is well equipped to weather that shift, particularly given the recent turn in sentiment about a US-China trade deal”. According to ANZ’s FX strategy team, led by Daniel Been

“The AUD is not cheap and does not make a compelling valuation argument to offset the lack of carry, just yet. In an environment of weaker growth and heightened uncertainty, risk reward suggests that the AUD should decline further.” The team added.

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