AUD Forecasted to Be Below Parity This Year

The Australian dollar – which appeared to be on course for a return to parity with the U.S. dollar just days ago – is set to end the year below $0.90, say strategists.

Reserve Bank of Australia (RBA) governor Glenn Stevens is partially responsible. His comment Thursday that the Aussie is “overvalued, and not just by a few cents,” sent the currency as low as $0.9329, down from $0.9439 earlier in the day. It edged up slightly to $0.9353 on Friday.

“The RBA is going to continue to jawbone the currency lower. If you’ve got a central bank talking down the currency, this is likely to discourage foreign investors from investing in Australian assets,” David Forrester, currency strategist at Macquarie told CNBC. He sees the currency falling to $0.88 by year-end.

Growing demand for Australia’s high-yielding bonds has been a key driver of the currency’s gains this year.

On top of a central bank that is talking down the currency, the Aussie could also come under pressure from higher U.S. bond yields later this year.

U.S. yields are currently being kept down by “unjustified pessimism” around the economy, which may slowly abate as we move into the third quarter, said David Woo, head of global rates and currencies research at Bank of America Merrill Lynch.

via CNBC

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