Australia’s dollar is under siege from an upcoming election, a trade war and a faltering economy.
Nomura Holdings Inc advocates a short position ahead of Saturday’s general election. QIC Ltd has advised pension-fund clients to sell the Aussie against the dollar and yen, while AMP Capital Investors is equally pessimistic. The currency has declined around 2.2 per cent this month to under 70 US cents, the worst performer among Group-of-10 peers, as optimism that trade frictions will be resolved evaporated.
“For the short term things are looking quite bearish on the Aussie,” said Janu Chan, senior economist at St. George Bank in Sydney. “The environment of uncertainty around trade is unhelpful — and I see it falling to perhaps below 68 US cents in the short term.”
Option traders are more bearish on the Aussie than any other G10 currency as the risk-sensitive asset suffers from a sudden escalation in US-China trade tension and a slowing economy. Investors are pricing around a 60 per cent chance that the Reserve Bank of Australia will cut interest rates in June, overnight index swaps show. A rise in the unemployment rate in April strengthened those calls Thursday and sank the Aussie to the lowest since January.
“I’d be long dollar versus the Aussie right now with something like the mid-60s a reasonable target,” said Stephen Miller, an adviser at GSFM in Sydney and a former head of fixed income at BlackRock Inc’s Australian business. “If I were looking for ways to play the trade war, and with growth cooling, shorting the Aussie would be one of them.”
National Australia Bank Ltd brought forward its RBA rate cut call to June from July and sees potential for additional stimulus by early 2020, economists including Alan Oster wrote in a note. The Australian dollar dropped to as low as 68.85 US cents in Asia trading Friday.