Australian Dollar to Fall to the 0.70-0.65 Zone Against US Dollar in Next Few Months say Intesa Sanpaolo Forecasters

Italian lender Intesa San Paolo keep their negative stance on the Aussie dollar despite its recent strong performance.

Economists at Intesa are not to be dissuaded from their entrenched bearish view of the AUD/USD, despite comments from the Reserve Bank of Australia (RBA) that it will not be targeting (trying to weaken) the exchange rate any longer as it has, “been adjusting” sufficiently in recent months.

The comments come as the Australian dollar is seen as one of the best performing currencies in the G10 arean for the month of March.

Strong data and a sanguine Reserve Bank of Australia have both conspired to stimulate market interest in the currency.

The RBA would always prefer a weaker Australian Dollar in order to keep pace with falling commodity prices, however, in its latest stetament it made no reference to the strength of the Aussie, which has depreciated substantially in recent months from 0.73 to lows of 0.68, reached in January.

Intesa Sanpaolo's Chief Economist Luca Mezzomo cautions markets on getting overly agressive on the long Aussie trade saying the RBA’s lack of movement on interest rates and brighter outlook for growth are not necessarily reasons to lower their bearish ‘axe-hand’.

Rather they continue to see downside risks prevailing, especially emanating from the possibility of a sharp slow-down in China and/or further commodity price declines.

Mezzomo cites an improving picture in the U.S and Fed policy as further reason for expecting a lower AUD to USD exchange rate as the US dollar index is expected to outperform after a multi-month break.

"The scenario by which the Fed will resume hiking rates after the 1Q hiatus should also aid a weakening of the exchange rate," says the economist

Intesa Sanpaolo argue that these factors will probably push the exchange rate down to the 0.65-0.70 zone over the next “few months.”

Over the one-year horizon, however, they are not so bearish, “in light of the wide rate differential with the RBA cash rate at a long-term low of 2.0%, but well above rates in all the other advanced economies, excluding New Zealand.”

Risks of a weaker Australian dollar are therefore skewed towards the near-term with a long-anticipated sustainable recovery occuring towards the end of 2016 and into 2017.

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