AUSSIE DOLLAR FORECAST TO FALL TO 80 CENTS IN 2014

Thursday, January 2, 2014

Aussie dollar forecast to fall to 80 cents in 2014

The dollar dropped from a high of just under 106 US cents in April, then tumbled further after the US Federal Reserve said it would consider reducing its massive stimulus program.

Australia's currency came under further pressure when the Fed finally decided earlier this month to reduce its bond buying program from $US85 billion to $US75 billion per month from the start of 2014.

Overnight, the Australian dollar fell to 88.3 US cents, but had since recovered to 89.1 US cents by 9:44am (AEDT).

Stephen Miller, the head of bond investment at the world's biggest investment firm Blackrock, believes the dollar could drop to 80 US cents.

"It depends on a variety of factors, but we certainly think it goes lower," he forecast.

"You've heard the governor of the Reserve Bank allegedly say that 85 cents is around fair value. We think it could possibly go lower than that, possibly as low as 80 cents."

Mr Miller says the pace at which the Fed continues to cut its stimulus will be a key driver of any falls for the dollar next year.

"Now the Federal Reserve didn't begin withdrawing that unconventional monetary policy until this month, but we expect it to accelerate that withdrawal through 2014," he said.

"That will support the US dollar and the flipside of that means we'll get a lower Aussie-US dollar rate."

Blackrock sees this as broadly positive for the Australian economy though.

"Some manufacturers have been struggling, certainly they'll welcome a lower dollar," Mr Miller said.

"Domestic tourist operators will welcome a lower dollar - that will mean that there's more locals staying at home because overseas travel will become more expensive, and there'll be more overseas travellers coming to Australia because for overseas travellers it will be cheaper.

"The other sector that might possibly benefit from this is the education sector - overseas students are very important for our education sector."

 

 
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