Australian dollar forecasts revised

09 May 2018

The Australian dollar’s steady decline has continued since the end of January and is back US5.9¢. Improving economic growth in the US has been one of the main contributing factors.

The US dollar (USD) has strengthened against most currency pairs during this time. However, recent moves against the Euro have accelerated the firming USD and the effects have been reflected in the AUD/USD exchange rate – currently trading at US74.5¢.

Domestically, Australia’s March retail sales fell short of expectations, applying further downward pressure to the economy and in turn the Australian dollar.

The decline in real retail sales points to a slowdown in real consumption growth during the first quarter of 2018, as households in general retain a cautious outlook. However, the Australian federal budget released yesterday could provide some support to consumer spending, given that the budget focused heavily on tax cuts for low to middle-income earners.

The Reserve Bank of Australia has kept interest rates at a record low of 1.5% since August 2016 and with inflation still not meeting the 2–3% target rate, the ‘big four’ banks in Australia have made revisions to their Australian dollar forecast by the end of 2018 – predictions now range from US72¢–US78¢.

Increased global competition and growing supplies have seen beef and cattle prices come under pressure so far in 2018; however, the downward trend of the Australian dollar will lend support in export markets. 

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