David Forrester, G10 FX Strategist, on the Aussie

Note: This section contains information in English only.
Source: Dukascopy Bank SA
© David Forrester
The RBA expects economy to grow by 2.5% in 2014, down from a forecast of 2.75%. It is tipped to grow by between 2.5% to 3.5% in 2015, slower compared with the forecast in May. The growth downgrade comes after 12 months with official interest rates set at a record low 2.5%. With that kind of stimulus in place for that amount of time, economists anticipated faster growth. Instead, the economy is now expected to walk rather than run over the medium-term, and at a pace that's unlikely to put a serious dent in the unemployment rate. What are your thoughts on this situation?
I believe the positive down revision is that the RBA saw stronger-than-expected growth in the first quarter, which largely came through exports growth. This situation is not likely to continue, because exports were boosted by several mine projects coming on. Hence, I would not be overly concerned about the RBA outlook for economic growth that was rather modest. Part of it also is weaker -than-expected labor market going forward, but overall growth rate of 2.5% is still pretty good, even though it is running a little bit below trend of 3.5%. Therefore, it is correct to conclude that it is probably not going to put that much of an impact in the unemployment rate. 

What will be the major headwinds for the Aussie until the end of 2014?  
In my opinion, the major headwind for the Australian Dollar will come from the US. Essentially, we expect the tendency in the United States labour market to continue improving and for wage growth to strengthen in the US. It will also back the FOMC, particularly, Janet Yellen into reckoner, in terms of receiving this signal that rates will have to likely go higher in the first quarter of 2015.  

What are your forecasts for the AUD/USD and AUD/JPY by the end of the Q3 and the end of the year?
In the short term perspective, we anticipate the AUD/USD heading towards 0.92. By the end of this year we expect the pair to trade at 0.88 levels. Talking about the AUD/JPY currency pair, we believe it will reach 97 by the end of Q3 and our target for the pair is 93 by 2014.

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