AUD Forecasted to Be Below Parity This Year

July 4, 2014 Share Print 0

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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Alfonso Esparza

Senior Currency Analyst at Market Pulse

Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.