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Elliot Clarke, analyst at Westpac, suggests that for the AUD perspective, Australian economy has slowed from a 4% annualised pace of GDP growth in the first half of 2018 to just 1% annualised in the second.

Key Quotes

“On the back of this dramatic deceleration, and given our concerns around the effect of declining house prices and soft household income growth on consumption, we look for growth to remain materially below trend at 2.2%yr in both 2019 and 2020. Versus the US, relative growth comparisons will then remain a material headwind for the Australian dollar over the forecast period.”

“Against the scale of the above Australia/ US differentials for growth and interest rates, our forecast for around a 4% decline in the Australian dollar to USD0.68 in the second half of 2019 appears modest. The justification for maintaining this forecast is two-fold: (1) key commodity prices continue to hold up better than anticipated; and (2) demand for Australian assets from foreign investors remains very strong.”

“The ability for the Australian dollar to maintain or exceed the USD0.70 figure is only likely to remain until mid-2019 after which the above growth; interest rate; and commodity dynamics will re-assert.”