End of parity: Experts say A$ heading south

That’s good news for exporters, but bad news for Australian travellers.

上海性息

The sudden decline follows speculation the US Federal Reserve may be winding down its bond buying program.

That essentially means, America’s central bank will be pumping less cash into the economy.

Economics 101 would say less cash, means less supply, bumping up demand. The greenback rises.

Technical reasons can also be applied, particularly as the US currency pushed through the 100 yen barrier, which also had an impact on the Australian dollar.

Commodity prices have also been weakening of late, and some traders would argue some shorting of the Australian dollar has also seen it fall.

But most of you, especially those planning a holiday in the Northern Hemisphere in the coming months really just want to know, where the currency is going.

So, I asked some of my contacts at the close of trade on Friday, for their take.

Generally speaking, most say there is scope for the Australian dollar to flirt with US parity in the short term, but they’re pretty unanimous that the future direction of the Australian dollar versus the greenback, and that’s down.

Chris Gore – GO Markets

“We have fair value sitting just above parity, around US$1.01. We’ve seen a material fall from the Aussie and a large part of this weakness we can attribute to a recalibration of stimulus expectations in the US. In short we think this change in QE expectations may be a tad premature and expect the A$ to regain some composure in the short term. We do however believe the local unit has a home below parity and expect to see a larger leg lower by year end, around US$0.95 in Q4.”

Shane Oliver – AMP Capital

“In the short term it looks like it’s heading down to $US0.95/0.96, which is the the bottom of range it has been in since 2011. Over the medium term it’s likely headed even lower. Commodity prices are now in a downtrend as mining supply pick up and Chinese growth has slowed a bit and the RBA is likely to cut interest rates further. As a result the overvaluation that has been apparent in terms of purchasing power parity measures is likely to be unwound. So it wouldn’t surprise me to see it fall below $US0.90 in the year ahead.”

Warren Hogan – ANZ

“It may go back to parity in the next few months but it is now past its peak. It will certainly be lower by the end of the year and we expect the down move to extend through 2014. It could go as low as the mid-80s.”

Stephen Koukoulas – Market Economics

“I see it at US$0.94 cents, reverting to fair value, meaning the level of commodity prices or terms of trade.”

Peter Maguire – PBM Commodities

“A$ looks like it has more room to move to the downside and our RBA may continue to drop rates over the coming months. If you’re heading to the USA over the coming months it may be prudent to exchange for US$ at around 98.5. It could very well be sub 96 by July”

Chris Weston – IG Markets

“Short term it could rally back to US$0.99 as it’s oversold and Bernanke will reiterate a dovish stance on Wednesday night. I’d sell into it though as medium term it will trade down to US$0.95 and lower longer term. The Federal Reserve won’t cut asset purchases until late 2013, early 2014, and the RBA will keep cutting. Foreigners are not buying the same level of Aussie bonds and there is news today that the Japanese are turning to Mexico rather than Australia.”

Craig James – CommSec

“We see the Aussie back to US$1.03 by September. The Federal Reserve won’t be lifting interest rates for some time, the US still has major budget issues to address and the Aussie is well supported by solid Australian economic fundamentals including a AAA rating.”

Rob Henderson – NAB

“The Aussie is now oversold on the downside and is below fair value at around parity. Medium-term we see it lower. Our forecasts for the end of this year is US$0.98, mid-2014 US$0.96 and end of 2014 US$0.94. But the story for 2014 will be that of a stronger US dollar against all currencies.”