AUD: Forecast downgrade - ANZ

Analysts at ANZ point out that the AUD’s recent leg down has pushed it below USD0.70, which is below the trough they forecast for this cycle.

Key Quotes

“The global outlook has deteriorated sufficiently that it no longer provides a plausible cushion to the inevitable reduction in domestic rates. As such, we have lowered the trough in our forecast to USD0.65.”

“We resisted an earlier downgrade to our forecasts because our base case had been that US-China trade tension would ease, improving the external outlook. That would have offset domestic weakness and the anticipated RBA easing cycle (which will weigh on the AUD).”

“However, 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. This means both the domestic and external stories are pointing to more substantial weakness for the AUD in 2019.”