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CBA cuts Australian dollar forecasts for 2018, 2019

Sarah Turner
Sarah TurnerPerspective editor
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Commonwealth Bank has cut its Australian dollar forecast for this year and next to take into account a slowing global economy, the pricing out of an interest rate hike in Australia this year and a firming of the US dollar.

The bank's chief currency strategist Richard Grace made the forecast changes to reflect a slightly quicker-than-expected slowing in the global economy over the first quarter.

"In essence, the global macroeconomic environment has changed since November, and we need to make some adjustments to our currency forecasts to reflect this," he said.

CBA analysts have cut their Australian dollar forecasts.  

A moderation in global economic growth means less upside for the Australian dollar, Mr Grace says, while noting that CBA's economics team has pushed out its forecast for the timing of a RBA rate rise from November this year to February 2019.

He's now expecting the Australian dollar to trade at US78¢ by the end of 2018, compared to a prior forecast of US83¢, and at US83¢ by the end of 2019, down from his US88¢ forecast made last November.

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"We believe that the currency movements since the start of 2018 have reflected the changing GDP growth dynamics between the US and Europe, and the corresponding lift in the US 10-year bond yield to 3.0 per cent," he says.

"The leg-up in the US 10-year yield since April 18 has lifted the US dollar and caused most of the major-economy exchange rates to decline, and test the lower-end of their recent ranges against the US dollar," he noted. "The biggest risk we see to our currency forecasts is a stronger US dollar."

Still, he says that it's "difficult for us to get bearish on the Australian dollar" due to a still-firm global economy, a domestic economy forecast to grow 3.0 per cent in 2018 and 2019, and as Reserve Bank governor Phil Lowe continues to repeat forward guidance for interest rates to eventually rise.

"We anticipate a re-strengthening of the global economy given very accommodative monetary policy and fiscal stimulus packages by a selection of the world's major economies. However, it will take some time for the Australian dollar to return to strength, and the currency forecasts are adjusted to reflect this," he says.

Sarah Turner is the editor of the AFR Weekend Perspective section based in our Sydney newsroom. Email Sarah at s.turner@afr.com

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