© Thu Lan Nguyen
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Potential growth for Australia in my view is mainly determined by the structural change away from the mining sector to other sectors. So far this change has progressed slowly, which is the main reason for currently slowing growth. However, I do believe that this structural change will continue, it may take a couple of years still until this process is completed though. So this may constrain growth for some time to come indeed.
The RBA reiterated its outlook, when rates were kept unchanged for a sixth month at 2 %, saying prospects for improved economic conditions had "firmed a little" in recent months. It also repeated that the inflation outlook "may afford scope" for an easing in policy if needed. Do you believe that the central bank is taking a glass half full approach to Australia's economy, citing better business surveys and a steady unemployment rate?
Regarding the domestic situation, the RBA is taking a relatively optimistic stance. Therefore, indeed, things are looking up on the domestic front. The labour market has improved significantly and the export sector is recovering somewhat as well. The Reserve Bank of Australia is more concerned about the external developments and a potential appreciation of the Aussie, which would endanger the economic upswing. Hence, because of that it is keeping the door open to further monetary easing.
The Aussie tumbled an initial 1.4 % on the US payroll release, before weak Chinese trade data drove it even lower ahead of local trading session. Do you believe there is still some way to fall for the Australian Dollar? What will be the major drivers for the currency till the end of this and the beginning of next year?
I do believe that the Aussie will further weaken, particularly against the Greenback.This will, however, be mainly due to an appreciation of the USD which will benefit from interest rate hikes by the Fed. In our view, the market may be underestimating the pace of rate hikes by the Federal Reserve at this point.
What are your forecasts for AUD/USD, EUR/AUD and AUD/JPY for the end of 2015 and the beginning of 2016?
We expect the AUD/USD to trade at 0.70 levels by the year end, and we see the pair at around 0.69 by the end of Q1 2016. Talking about the EUR/AUD, we anticipate the pair to be at 1.54 and 1.46 in Q3 of 2015 and Q1 2016 respectively. Finally, our forecasts for the AUD/JPY are 87.50 for the end of this year and we expect the pair to rise till 92.46 by the first quarter of 2016.