Westpac cuts outlook for Australian dollar to US66c

Westpac has sharply downgraded its Aussie dollar forecast as global confidence in our economy wanes.

International confidence in Australia’s economic prospects has fallen, prompting one of the country’s largest banks to sharply downgrade its forecast for the Australian dollar.

Westpac (WBC) said today it now expected the Aussie dollar to end the calendar year at US66c, down from an earlier forecast of US70c.

“Confidence in Australia and the Australian dollar has been particularly shaken by developments in the emerging markets,” said Westpac chief economist Bill Evans.

“Australia shares certain characteristics with some of the worst-performing economies in the emerging world — a sharp and ongoing terms of trade reversal, exposure to China, a widening current account deficit, large offshore borrowings. These factors are an albatross around the Aussie dollar’s neck in the present climate,” Mr Evans said.

The Australian dollar was trading around US69.60c at noon today.

“We do not expect the confidence vibe around the Australian dollar to improve for the remainder of this year,” he said.

The Australian dollar has fallen by close to 27 per cent against the US dollar in the last year, as the economy has been hammered by falling commodity prices, a slowdown in China, and returning strength in the US dollar as the US Federal Reserve has moved closer to raising interest rates.

Domestic interest rates have been cut to record lows to bolster the economy, with some economists still expecting the central bank to cut again as growth remains weak over the longer-term horizon.

Data last week showed Australia’s economy grew by just 0.2 per cent in the second quarter from the first quarter — half the rate expected by economists, and by 2 per cent from the same quarter a year earlier.

Retail sales fell by 0.1 per cent in July from the previous month, the first time in more than a year that month-to-month sales have fallen.

“Negative market perceptions around China and Australia’s trade exposure to it are likely to persist, general emerging market woes are also set to continue, financial markets will remain volatile and we do not expect markets to be immune to the US interest-rate hike we expect later this month,” Mr Evans said.