ANZ tips Australian dollar to trough at 64 cents with two interest rate cuts in first half 2016

MELBOURNE – ANZ Bank today downgraded its forecast for the Australian dollar, which it now expects to reach a trough of 64 cents to the US dollar. ANZ is also forecasting two more interest rate cuts for Australia in the first half of 2016, citing ä shift in the balance of risks”.

“This shift in tact means that the probability that the AUD overshoots its fundamental fair value has risen and we revise our forecasts lower,” ANZ said.

“The AUD has continued to trade in a fashion consistent with an overshooting framework for the currency. That is to say, global investors have diverted their collective attention away from events in both the domestic economy and broader commodity markets, and have been more focussed on financial market volatility.

In the period ahead, the focus is set to shift back to the domestic economy. ANZ is expecting the RBA to ease rates by a further 50 basis points next year.

“While we do not expect growth to deteriorate drastically, we do think that growth will not be sufficient over 2016 and 2017 to eat into spare capacity in the economy.

“Hence, extra policy support will be needed.

“Risks to global growth remain to the downside, while housing market activity and the weakness in the AUD will have a diminishing impact on the domestic economy as they start to slow.” www.live.anz.com (ATI).