Nouriel Roubini, also known as Dr. Doom after predicting the global financial crisis, sees dark forecasts for Australia’s economy and says the currency is likely to weaken to 75 cents against the dollar – over 1300 pips from the price at the time of writing.
Is the recent fall of the Aussie just the beginning? Here are 5 reasons for an Aussie slump, extracted from the words of the famous economist’s firm:
It is important to note Roubini is bearish most of the time, and his record is not clean of mistakes. However, with the fall of the prices of iron ore at a new 5 year low of $81.70 on Friday, he may have some valid points.
The economist mentions a few reasons for the fall:
- Slowing Chinese growth is likely to continue hitting commodity prices.
- Weakness in consumer activity
- Weakness in investment
- Fiscal austerity that is “poorly timed”.
- Housing boom “increasingly out of line with fundamentals”
This may all result in the RBA cutting the interest to 2% from the current 2.50% and with the upcoming tightening of policy from the Federal Reserve, the end result according to Roubini is a plunge of AUD/USD to 0.75.
The last time that AUD/USD traded at 0.75 was back in May 2009. That’s over 5 years ago. Here’s a big picture chart showing quite a few levels below: 0.8655 is the cycle low. 0.8060 is the 2010 low and 0.6066 is the post crisis low.
For more recent levels, see the AUD USD forecast.