The Forecast for the Australian Dollar in 2018
Volatility rocked currency markets in 2016, but stabilised in 2017 and ended the year even stronger than the “Big 4” banks anticipated. While the AUD was surprisingly resilient in January 2018, a couple banks have since lowered their short-term AUD forecasts to reflect recent declines. Currently the AUD is around 75 cents.
ANZ recently made slight adjustments lower to its AUD forecast for the near-term. It now expects the AUD/USD to remain around 76 cents by the middle of the year, before ending 2018 at 72 cents.
The Commonwealth Bank (CBA) is still the most optimistic for a higher AUD in 2018. This is despite recent changes to their AUD forecasts lower. CBA sees the AUD consistently rising to 78 cents by the end of 2018.
National Australia Bank lowered its Australian dollar forecast in 2018, but is still higher than ANZ’s forecasts. The bank expects the AUD to end the year at 75 cents.
Unlike the other banks, Westpac mildly upgraded its Aussie dollar outlook back in February, but is still fairly negative. Westpac expects the AUD to fall to 74 cents end of 2018.
While most forecasts vary, many agree on the influences on the local currency. Here are the main three:
1. Australian and US Interest Rates
2. Commodity Prices
3. Quantitative Easing in other western economies
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Weekly Update: Australian Dollar
Find out how the Australian Dollar has performed in the last week. These rates were correct at 8am 16.06.2018 AEST. Find out more here.
How low will the Australian Dollar go?
The banks appear divided on how much lower the AUD will be by the end of the year. With the current AUD/USD exchange rate trading below CBA's, ANZ's and NAB's expectations, will the ‘Big 4' banks start to downgrade their forecasts? Potentially.
Let's examine the 3 most likely reasons the Aussie will move lower than current forecasts:
1. The US economy picks up, US political risks ease, and their central bank increases interest rates, supporting the USD
2. The Australian economy falters and inflation only slowly and gradually picks up, decreasing the risk of interest rate hikes from the RBA
3. China’s economic growth slows more than expected, lowering demand for our commodities (and our Aussie dollar)
AUD Crosses Bank Forecasts
The AUD EUR has fallen even more than the major banks were originally expecting since the beginning of the year. It is currently around 62 cents.
ANZ has the AUD EUR rate declining to 0.55 by the end of 2018, the lowest out of the four banks. In contrast, CBA is the most optimistic and expects the AUD EUR rate to remain above 0.65 cents by the end of Q4 2018. NAB lowered its AUD EUR forecasts to end 2018 at 58 cents (or 0.5800). Meanwhile, Westpac recently downgraded their expectations for the AUD EUR to decline to 61 cents.
Ongoing political uncertainties around Brexit and an economic slowdown for much of 2017 has made the GBP the most undervalued major exchange rate against the USD. This uncertainty is a key reason why major banks lack conviction and have a flat profile for the AUD GBP in 2018.
NAB is expecting the AUD GBP to fall to 51 cents by year-end. Meanwhile, CBA has thinks the AUD GBP rate will track slightly higher to 0.5845 by December 2018.
All the major banks we looked at expect the AUD/NZD exchange rate to reverse recent declines near-term. The reason(s)? A recovery in key Australian commodity prices combined with a drop in key New Zealand commodity prices.
By the end of the year, the majors are expecting the AUD/NZD exchange rate to fall to 1.07, with the exception of CBA who is predicting a rise to 1.1067. Commonly, the outlook is said to be dependent on movements in the US dollar and economic strength in Australia and New Zealand.
General advice: The information on this site is of a general nature only. It does not take your specific needs or circumstances into consideration. You should look at your own personal situation and requirements before making any financial decisions.
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