Neil Mellor, Senior Currency Strategist at BNY Mellon, on the Australian Dollar

I believe that there is a decent possibility of the Australian Dollar falling further. First of all, I would like to highlight the need for caution given that on at least four-five occasions over the past two-three years, the Australian Dollar has got to these levels against the U.S. Dollar and then has rebounded very sharply higher. In my opinion, most people having dovish views on the Australian Dollar currently are performing quite badly. However, reason why I believe it might be different this time is due to reserved diversification patterns across the Asian world. According to the IMF reserve data, the central banks that publish the breakdown of their reserves, the Aussie Dollar has seen big gains against such expensive currencies like Euro in terms of the composition of reserves among all these banks, which are actively intervening to buy Dollars.  However, as we already know that has started to fall away to some extent. After being a main supportive factor for at least two years, it is actually currently starting to fade. Despite the fact that the Australian Dollar has been a subject to poor economic data out of Australia over the last years, it still managed to maintain a hold on parity to the U.S. Dollar. This change is taking place as we believe there is significant possibility of further downside from these sorts of levels.

In my opinion, there is a distinct possibility that we have seen the end or at least the move to the end of the mining boom that in fact government has recognized. I believe with a slowdown in the Chinese economy, as they are trying to re-balance their growth, the Australian Dollar might not be as popular as it has been lately.  Moreover, in the short term we also need to consider the Aussie Dollar's performance against the Yen, as it has been quite a popular trade to buy the Aussie versus the Yen for quite some time. However, if we look at the actual yield that currently is available for shorting the Yen, it is actually getting quite sharply not only over the last two or three years but particularly since the start of this year. Therefore, I think in the short term there is a potential risk for the Australian Dollar against the Dollar. It would probably take few years before Australia's Dollar will recapture the heights that we have seen.

I would be very surprised if we did not see some bounce back in the AUD/USD and then a retest of the 98-cent mark. For the long term, that pair would probably reach 90cents mark, but you never can be sure what to expect in between.