The days in the sun for the Aussie dollar are quickly and brutally coming to an end.
Traders and economists from Bell Potter’s Charlie Aitken to Professor Ross Garnaut are lining up to predict its downfall.
The dollar hit a 30-month low of 94.35 US cents, but Aitken thinks it could go lower.
In a note to clients, as reported in The Age, Aitken said it was not out of the question that the Australian dollar could sink below 90 US cents by the end of this year.
The same publication reports that IG’s Chris Weston is calling the dollar’s fall a ‘massacre‘, the dollar having now lost 10.6% in last 40 trading sessions.
A few days ago, Professor Ross Garnaut said he won’t be surprised if the dollar drops to 70 or even 60 US cents.
The Wall Street Journal reports that in the view of Stephen Jen, a partner at London-based SLJ Macro Partners, the Aussie dollar ranks alongside emerging market currencies as being in “grave danger” of a big correction lower.
Not helping matters, The Australian Financial Review said Australia’s economy may be teetering on the brink of a domestic recession as the resources boom falters, consumers restrain spending and businesses cut investment plans.
Interest rates headed lower…
For those planning overseas holidays, and for purveyors of international shopping websites like Amazon.com, things just got that little bit more expensive.
But, adding some perspective, the dollar is still trading way above its long-term average, and we’re still getting very good value for our Aussie buck.
From an economic and investing perspective, a lower dollar is preferred. The RBA is likely cheering the dollar lower too.
But will it be enough to stave off further interest rate cuts?
I doubt it, especially given Australia may be on the brink of a domestic recession. Investors have raised the chances of a cut in interest rates by the Reserve Bank of Australia in August to 63% from 49%, and some economists like Westpac’s Bill Evans, think the base rate could be slashed to as low as 2%.
The Foolish bottom line
The S&P/ASX 200 index (Index: ^AXJO) (ASX: XJO) has fallen back below 4,800 as investors have collectively run for the hills.
What they seem to have forgotten is, when compared to term deposits, the dividend yield on some of the ASX’s most popular stocks, including QBE Insurance (ASX: QBE), Macquarie Group (ASX: MQG) and JB Hi-Fi (ASX: JBH) is very attractive. And that’s before the RBA slash interest rates again…
The bulls will return to the stock market, perhaps sooner than you think. As for the Aussie dollar though, the days of parity and above look to be long gone. Adjust your holiday spending plans accordingly.
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Of the company’s mentioned above, Bruce Jackson has an interest in Westpac.
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