Bulls see Australian dollar falling to 60 cents as Trump prepares for Chinese tariffs

(Bloomberg) — The Australian dollar fell by the most in six years in 2024, but its decline appears far from over — there’s a good chance it could fall below 60 U.S. cents in the coming months.

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The Australian dollar has been hit hard since the end of September due to deteriorating global risk sentiment and growing expectations that the Reserve Bank of Australia will be forced to start cutting interest rates. Another negative looms in the possibility of a trade war between the United States and China, Australia’s largest trading partner.

“A drop all the way to 60 cents is conceivable at risk as US stocks fear an unfolding global trade war, Chinese counter-fiscal stimulus is insufficient, and the RBA is forced to cut quickly to provide support,” Gareth said. Perry, a foreign exchange and interest rates strategist at Macquarie Bank Limited in Singapore.

The Australian dollar fell 9.2% last year, reaching a low of 61.79 cents on December 31, before rebounding slightly to end last week at 62.16 cents. The first major support level for the coin is the October 2022 low of 61.70 cents, breaking which would put it at its weakest level since the April 2020 pandemic risk sell-off.

61.70 cents could be tested as soon as this week if Australian November inflation data due on Wednesday comes in below market expectations, boosting bets on a rate cut by the Reserve Bank of Australia in its next policy decision on February 18.

The minutes of the central bank’s December meeting, published on Christmas Eve, included language that could be interpreted to mean the February decision was “live,” according to Richard Franulovich, head of foreign exchange strategy at Westpac Banking in Sydney.

He added that the minutes presented the possibility of “easing the degree of monetary policy tightening,” and added in a separate section that additional information on the labor market, inflation and spending would be available by the time of the February meeting.

The Australian dollar has room to extend losses, even after falling 10% in the last quarter, and will likely end March at around 61 cents, Franulovich said.

He said the currency is stumbling “through weak end-of-year markets with a shaky foothold at the 0.62 handle,” and its failure to rise back above the 0.6275 level “keeps the focus squarely on the continued downside.”

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