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How low can it go? Will the Aussie dollar continue to dive?

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How low can it go? Will the Aussie dollar continue to dive? article image

After a significant bounce in early September, the Australian dollar resumed its downward trend in the latter part of the month.

The AUD traded in a range of 0.6700 to 0.6900 against the US dollar in September, driven by mixed economic news from the local market, which included the nation’s first current account surplus in 44 years and the unemployment rate edging up to 5.3%.

Weaker employment data made it inevitable that the Reserve Bank of Australia (RBA) would be cutting the official cash rate to 0.75%, which it did in early October.

What is currently causing concern in currency markets, however, is the lack of consensus on whether the RBA will make further cuts in the near future.

The Government appears firm about adjusting rates rather than spending some of its trade surplus but if it does cut further, this would leave little room to move in the event of a global recession.

The US, on the other hand, is arguably in a stronger position. Despite US President Trump’s calls for a much weaker USD, the US Federal Reserve cut its rate by 0.25% to a range of 1.75% to 2% in September and has indicated that it sees no further rate cuts in 2019 and 2020.

Prepare for a move lower

The market is currently awaiting the release of a raft of data that will help to determine the outlook for the AUD against the USD. China talks will recommence this month, further Australian economic data will be released in two weeks and the US Federal Reserve will announce its next rate decision in late October.

For business owners, it is important to note that the AUD can still fall further from its current 10-year lows and we recommend assessing the potential impact of a move to 0.6000.

Importers can prepare for further downside by making the most of the current levels or perhaps readjusting their costed levels. Exporters, however, can continue to capitalise on the current levels.

Consult the experts

The currency markets are full of risks and opportunities for trading SMEs. Managing these risks and trying to predict market movements can be complex and a distraction from day-to-day business activity.

It’s best to consult with a foreign exchange provider throughout the year who understands your industry and can provide relevant currency market insights and analysis, as well as gauge what market shocks may be around the corner.

To find out more, please visit www.afex.com

James Swerling is Senior Dealer, Fund & Institutional Sales at AFEX, a leading global payment and risk management solutions provider specialising in cross-border transactions

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