Westpac Sees Aussie Drop Toward 97 U.S. Cents

Australia’s dollar will drop to its lowest level in almost a year as investors reduce bets on gains with the nation’s central bank poised to reduce interest rates from a record, according to Westpac Banking Corp.

The so-called Aussie will probably decline into a trading range of between 97 U.S. and $1.02, with fair value at the lower end, said Hugh Killen, Sydney-based global head of foreign exchange at Westpac. The currency has remained above $1 for a record stretch of more than 10 months. It yesterday dropped to its weakest since June after the Reserve Bank cut rates to 2.75 percent on May 7.

“The recent easing is aimed at spurring domestic activity but it’s also aimed at the currency,” said Killen in a interview with Bloomberg News. “The Aussie will remain overall elevated but in a lower range, trading somewhere between a base of 97 cents with a $1.01 or $1.02 topside. Over the coming days and weeks we’ll see it trade down into that trend.”

Australia’s dollar fell 0.3 percent to $1.0060 as of 4:04 p.m. in Sydney after yesterday touching $1.0047, the least since June 29. It last traded at 97 U.S. cents on June 4 and is forecast to trade at $1.01 by year-end, according to the median estimate of analysts compiled by Bloomberg.

The RBA today cut its inflation outlook and reiterated its forecast for “below trend” growth this year, driven by an elevated currency, a crest in resource investment and fiscal tightening.

RBA Outlook

Traders are betting policy makers will lower borrowing costs by 28 basis points over 12 months, according to a Credit Suisse Group AG index. The premium Australia’s two-year bond yields offer over similar-dated U.S. notes shrank to 2.23 percentage points on May 7, the least since Oct. 22.

Added to the domestic pressure, support for the Aussie is also being undermined by accelerating growth in the U.S., said Killen.

The number of Americans filing claims for jobless benefits unexpectedly dropped last week, and the average over the past month fell to the lowest level since before the last recession, a report showed yesterday. The nation’s unemployment rate fell to a four-year low of 7.5 percent, data showed May 3.

“Over the medium term, we are seeing economic activity pick up in the U.S. and it will continue to do so into the end of this year and next year,” he said. “We could see the beginning of a proper U.S. dollar move and that will definitely have an impact on the Aussie.”

Before it's here, it's on the Bloomberg Terminal.