The Australian Dollar tumbled to a four-year low against the US Dollar (AUD/USD), a two-week low against Pound Sterling (AUD/GBP) and a five-day low against the Euro (AUD/EUR) as Reserve Bank of Australia (RBA) Deputy Governor Philip Lowe stated that the ‘Aussie’ remains overvalued.
Falling commodity prices and growing concerns over the weakening global economy have particularly affected upon the ‘Aussie’ and other riskier commodity based assets as economists sought the safety of the US Dollar. The price of iron ore, which is Australia’s most traded commodity remains low.
‘If the exchange rate is to play its important stabilising role, it needs to go down when the terms of trade and investment are declining. Concerns about the overall level of wages in Australia are, to some really concerns about the exchange rate with the high exchange rate leasing to high wages expressed in foreign currency terms,’ said Mr Lowe at a business conference.
Lowe also warned of more weakness occurring in the Australian economy as mining and business investment look set to decline sharply over the coming years. Business and consumer confidence have been weak throughout 2014 despite the RBA leaving interest rates at record low levels. Some economists are warning that the slowdown in mining investment could weaken the Australian economy for another two years.
Mr. Lowe added that uncertainty about the economic outlook remains high, but uncertainty was nothing new.
“It is important that we guard against the possibility that this uncertainty mutates into chronic pessimism,” he said.
As weakness persists in the national economy Australia’s leading business economists are forecasting that the RBA will choose to leave interest rates for another six months, creating a record run of close to two years without a rate move.
The economists forecast that the cash rate will remain steady at 2.5% until June next year, before climbing to 3% by December, there is a range of forecasts, from a low of 2.5% all year to highs of 3.25% by June and 3.75% by December.
The Australian Dollar is forecast to make further losses against its major peers as the session progresses as market attention turns to economic data out of the USA.
Chain Store Sales, GDP and CB Consumer Confidence reports are all set to be released. Strong figures from those reports will bolster the US Dollar further and keep the ‘Aussie’ under heavy pressure against the majority of its major peers.
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