Updated in September 2018
After the half way point of 2018, the Australian Dollar has fallen further and faster than most economists thought at the start of the year.
Forecasts for the Australian Dollar vary from bank to bank and from month to month. This article looks at the different outlooks and is updated regularly.
Bank Forecasts for the AUD to USD
Volatility rocked currency markets in 2016, but stabilised in 2017 and ended the year even stronger than the "Big 4" banks anticipated.
This year the Australian dollar has tumbled faster than expected, and all the banks have dropped their AUD forecasts to reflect a change in expectations.
Currently the AUD is a touch below 72 cents.
ANZ made slight adjustments lower to its AUD forecast a few months ago and remains negative on the AUD. With the AUD/USD falling a bit faster than initial expectations, the bank moved its year-end forecast to 70 cents, from 72 cents previously.
The Commonwealth Bank (CBA) has changed its tune after making another significant drop in their AUD forecasts. CBA sees the AUD remaining around 72 cents by the end of 2018. This is a significant downgrade from 75 cents previously.
National Australia Bank lowered its near-term Australian dollar forecast recently to reflect a weaker AUD. However, the bank still expects the AUD to end the year at 75 cents. Like CBA, a lower forecast might be in order if the AUD remains under 72 cents.
Westpac lowered year-end forecasts after the latest AUD declines. They remain fairly negative. Westpac expects the AUD to settle around 73 cents by the end of the year, a slight adjustment from their previous forecast of 74 cents.
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How Low Will the Australian Dollar Go?
The banks appear divided on where the AUD will be by the end of this year and in 2019. With the current AUD to USD exchange rate trading just slightly below CBA's, ANZ's and NAB's expectations, will the ‘Big 4' banks hold on to their current forecasts? Potentially.
Let's examine the 3 most likely reasons the Aussie will remain weak at current forecast levels:
- The US economy picks up, US political risks ease, and their central bank increases interest rates, supporting the USD
- The Australian economy falters and inflation only slowly and gradually picks up, decreasing the risk of interest rate hikes from the RBA
- China’s economic growth slows more than expected, lowering demand for our commodities (and our Aussie dollar)
AUD Crosses Bank Forecasts
AUD EUR forecast for 2018
The AUD EUR peaked in early June around 65 cents, but has since fallen again. Recent declines were more than the major banks were originally expecting. 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 backtracked and raised its AUD EUR forecasts up to 64 cents (or 0.6400). Similarly, Westpac recently upgraded their expectations for the AUD EUR to go up to 64 cents.
AUD GBP forecast for 2018
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.
CBA has thinks the AUD GBP rate will track slightly higher to 0.5845 by December 2018. Meanwhile, NAB has raised its AUD GBP forecast to 60 cents by year-end.
AUD NZD forecast for 2018
All the major banks we looked at expect the AUD/NZD exchange rate to move higher. In other words, they expect the NZD to continue to underperform major currencies. The reason(s)? A recovery in key Australian commodity prices combined with a drop in key New Zealand commodity prices.
ANZ, NAB and Westpac recently upgraded their AUD/NZD expectations. ANZ is expecting the AUD/NZD exchange rate to rise to 1.13, NAB to 1.10 and Westpac to 1.11 by year-end. CBA is predicting a rise to 1.1067. Typically, the outlook is said to be dependent on movements in the US dollar and economic strength in Australia and New Zealand.
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