Australian dollar tipped to stay strong at 90 US cents or more

Australian dollar tipped to stay strong at 90 US cents or more

By Alicia Barry

There are mixed predictions for the Australian dollar but at least two investment banks expect it will hit 96 US cents by the end of the year.

Photo: The Australian dollar is the second best performing major currency this year.

Australia‘s dollar has risen 5. 6 per cent this year and is the second best performer in a group of ten major currencies, behind the New Zealand dollar.

The survey of 50 analysts by the financial data firm Bloomberg shows the median expectation is that the dollar will fall to 90 US cents by the year’s end.

“What’s been driving the Aussie dollar is the carry trade in an environment of low volatility and we don’t expect that to continue into the second half, particularly as the market starts to focus on the end of QE,” he said.

The Reserve Bank governor Glenn Stevens has recently warned the Australian dollar is set to fall significantly.

Westpac’s chief economist Bill Evans says this year’s decline will be driven by falling commodity prices and the end of the Federal Reserve‘s quantitative easing (QE) program.

“Next year, however, we’re expecting to see a stronger global environment, and the market starting to focus on rate hikes in both Australia and the US,” he said.

Citigroup’s London-based head of currency strategy Valentin Marinov predicts the RBA will start raising rates in the second quarter of next year.

Figures from Japan‘s finance ministry and central bank show that, in May alone, Japanese investors bought almost $3. 4 billion worth of Australian bonds and notes.

Westpac and Societe Generale agree with that consensus outlook, while US bank Wells Fargo is expecting the currency to hit 95 US cents.

Separately, last month, investment bank Morgan Stanley said it expected the dollar will return to parity with the greenback in 2014.

“When judged against current and likely future trends in the terms of trade, and Australia’s still high costs of production relative to those elsewhere in the world, most measurements would say it is overvalued, and not by just a few cents”.

Read more here: ABC


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