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5 Factors for the AUD Collapse; What’s Next? – Goldman

The Australian dollar is on the back foot, with AUD/USD nearing the critical low of 0.8066.

The team at Goldman Sachs provides 5 factors for the fall of the Aussie, and place the next targets:

Here is their view, courtesy of eFXnews:

After a six-week breather, the AUD started to depreciate again in the middle of last month and since November 14, it has declined by more than 5.2% against the USD, ranking as one of the weakest currencies in the intervening period, notes Goldman Sachs.

Several factors, according to GS, could have contributed to the move:

1- The continued drop in commodity prices. Iron ore is now at USD68/tn, 50% lower than at the start of the year, with a 12% drop since the beginning of November.

2- Ongoing China growth concerns as the authorities continue to ease policy in order to achieve the 2014 growth target, indicating that underlying growth momentum remains fragile.

3- Dollar appreciation on a trade-weighted basis against the back drop of US economic outperformance and Fed rhetoric which points to rate hikes in mid-2015.

4- Weak Australian data which has prompted the market to discount at least one RBA cut over the next 12 months.

5- And more recently, the rise in risk aversion.

AUD weakness recent leg down coincides with several influences 2015 charts

What’s next?: AUD forecasts:

GS now sees AUD/USD at 0.83 in 3 months, 0.81 in 6 month, and 0.79 in 12 months.

Why stop at 0.79? “At 0.79, the big dislocation between the deterioration in Australia’s terms of trade and the AUD will be closed on our estimates and the market already discounts at least one cut from the RBA,” GS argues.

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Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.