How Low Can the Aussie Dollar Go

January 17th, 2014

The dollar began its decline in April 2013, falling from just under 106 US cents to just under 99 cents. ; After a bounce in August, the currency started falling again in late October and has been on a downhill run ever since. ; While some experts think the Aussie can hold its ground and even improve on the greenback in the months ahead, others suggest a long-term slide is much more likely. ; ;

Recent lows came after Reserve Bank Governor Glenn Stevens mentioned the "uncomfortably high" value of the dollar in early November, with investors losing confidence and technical support levels just under 89 cents looking shaky ever since. ; According to Stephen Miller from investment firm Blackrock, the dollar could fall to as low as 80 US cents. ; In a statement published by the ABC, Miller said "It depends on a variety of factors, but we certainly think it goes lower... You've heard the governor of the Reserve Bank allegedly say that 85 cents is around fair value. We think it could possibly go lower than that, possibly as low as 80 cents."

The value of the Australian dollar depends greatly on the future of the US Federal Reserve stimulus program, another factor which has already influenced and could accelerate the decline in 2014. ; "Now the Federal Reserve didn't begin withdrawing that unconventional monetary policy until this month, but we expect it to accelerate that withdrawal through 2014," said Miller, adding "That will support the US dollar and the flipside of that means we'll get a lower Aussie-US dollar rate."

Just like all transactions in the currency market, however, there is always someone on the other end of the deal, and always an opposing view to be considered. ; According to State Street Global Markets’ Dwyfor Evans in a statement to the Australian Financial Review, “We continue to see AUD in the [US90¢-US93¢] range and while there will be inevitable under/overshoots, this seems consistent with the fair value real effective exchange rate approach.” ;

The low Australian dollar continues to affect the mortgage market, with any future RBA decisions on interest rates directly linked to the value of the local currency. ; If you want to finance a mortgage or re-finance an existing home while rates remain low, perhaps now is a good time to speak with your broker. ;