Analysts again upgraded forecasts for the Australian and New Zealand dollars in the latest Reuters poll, but they still lag the market as investor risk appetite gets a boost from hefty central bank stimulus.
FILE PHOTO: Australian dollars are seen in an illustration photo February 8, 2018. REUTERS/Daniel Munoz/File PhotoMedian forecasts put the Aussie AUD=D3 at $0.7200 on a one- and three-month horizon from $0.7000 and $0.7050, respectively in the previous poll.
The market, however, already has the Aussie at $0.7320, having hit a two-year top of $0.7413 just this week.
Yet the poll shows analysts doubt the rally can get much further, putting the currency at $0.7300 in six months and $0.7400 in one year amid expectations monetary policy will remain accommodative for a long time to come.
The gains in the Aussie have come even as Australia’s A$2 trillion ($1.47 trillion) economy has sunk into its first recession in almost three decades, with unemployment at a 22-year high and wages growth as all-time lows.
The Reserve Bank of Australia (RBA) has stepped in by slashing the cash rate to a record low 0.25%, launching an “unlimited” bond buying programme and offering cheap funding to lenders. It has promised to do more if needed.
But the U.S. Federal Reserve has gone even more dovish, making the greenback weaker and eroding its previous interest rate advantage over rivals.
Also supporting the Aussie is the relative outperformance of the Chinese economy, which continues to suck up Australian resources in a boost to prices for key exports including iron ore.
That has gifted Australia with its largest current account surplus in decades, providing a net trade inflow to the Aussie.
“We continue to see AUD as a relative outperformer in G10,” Geoff Yu, senior market strategist at BNY Mellon wrote in a note.
“The RBA has explicitly highlighted the role of fiscal and Australia’s favourable borrowing conditions to support the economy in greater scale and scope up ahead. Gradually, if successful, these investment trends will be reflected in AUD valuations.”
The New Zealand dollar has benefited from similar forces, though again analysts polled seem to think it has topped out for the moment, putting it at $0.6600 NZD=D3 over three months.
The kiwi was last trading at $0.6764 after rising for five months on the trot and was not too far from a one-year high touched this week.