Aussie Dollar Keeps Dropping

December 21st, 2014
The Australian dollar continues to tumble, now sitting at its lowest level since June 2010. Influenced by a firming US Dollar, year-end liquidation, technical lows, and negative Reserve Bank sentiment, the local currency finds itself between conflicting forces going into 2015. While forecasts are not all one-way, a growing number of economists see the Aussie falling below 80 US cents over the next 12 months. The Australian Dollar is now sitting just over 82 US cents, threatening to move lower at any moment. ; After being confined in a tight band between 86 and 89 US cents through September, October, and November, the Aussie has started slipping into territory it hasn't seen for quite some time. ; With Reserve Bank governor Glenn Stevens recently coming out in support of a 75 US cent dollar, no-one is sure how well the Aussie can support itself through the New Year period. In a wide-ranging interview with The Australian Financial Review last week, Mr Stevens said that while the economy, jobs, and inflation were roughly where the central bank expected them to be, the dollar was not: ; "Well, I think it’s quite likely that it will a year from now be lower than it is today, on the basis of the facts that we presently have. And, yes, a year ago I said probably 85 US cents was better than 95. And if I had to pick a figure now, I would say probably 75 is better than 85." According to Mr Stevens, the Australian dollar will keep adjusting itself as the currency market reacts to global conditions and falling prices for key Australian exports like iron ore. ; Further declines in the dollar are also likely against other currencies according to Mr Stevens, who said "I think the adjustment we have been seeing is taking us closer to where most fundamental metrics have you be, but I doubt that adjustment is yet complete... ; Some further adjustment is going to have us much more like normal historical levels, at least against the US dollar and maybe some others." Interest rate decisions in early 2015, both here and overseas, will have a massive effect on the Australian dollar. ; According to LTG GoldRock director Andrew Barnett in a statement to the Australian, “The overwhelming trend is lower, all the economic conditions in Australia are pointing to a rate cut, and in the US a rate rise, so overwhelmingly we’re going to see any rally up to be fairly short lived with the selling pressure returning the minute the optimism fades.” However, Mr Stevens pushed back against calls for near-term interest rate cuts, saying the economy is acting as expected partly due to steady rates over the past year: ; "I have been asking myself what can we do that will be most conducive to supporting confidence, predictability, the sense that people can make some plans for their business, their own life, whatever it might be... ; And the view I came to pretty early on was: what we should be doing is giving a message of stability and predictability insofar as we can."