Difficult times: People watch as the Sydney Opera House is illuminated in honour of Queen Elizabeth II, who passed away last Thursday. Amid all this, the country’s central bank is battling to contain the Australian dollar’s slide. — AP
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SYDNEY: The Australian dollar is tumbling towards a multi-year low and the central bank appears powerless to stop its decline.
The currency has lost about 3% since May as China’s slowing growth and a stronger greenback exert pressure.
A slew of interest rate hikes has provided little support and Commonwealth Bank of Australia sees the Australian dollar dropping to 62 US cents (RM2.79) by early next year, a level it last reached in April 2020.
A resource-linked currency that’s sensitive to swings in global sentiment, the Australian dollar has suffered as the world economy lost momentum.
It may take a further hit if a report this week shows that Australian employment weakened further last month after a surprise contraction in July.
“The Reserve Bank of Australia (RBA) policy influence on the Australian dollar remains quite limited,” said Ray Attrill, head of FX strategy at National Australia Bank Ltd in Sydney.
“The Australian dollar has never fared well when a global slowdown or recession is upon us, while the US dollar still looks rock solid.”
The Australia-US dollar currency pair has been firmly entrenched in a bear trend since mid-August, and looks set to test support at its July low of 0.6682.
A breach of that level paves the way for it to fall to 0.6464, the 61.8% Fibonacci retracement of its March 2020 to February 2021 rally.,
The Australian dollar has retreated even after the central bank delivered 225 basis points of rate hikes since May.
During the last increase on Sept 6, which took the benchmark rate to a seven-year high, the currency fell almost 1% against the greenback.
RBA governor Philip Lowe last week signalled a potential end to aggressive tightening, saying that “all else equal, the case for a slower pace of increase in interest rates becomes stronger as the level of the cash rate rises.”
The next cue for the Australian dollar may come from jobs data due on Thursday.
If the report shows employers added fewer positions in August than the 30,000 forecasted in a Bloomberg survey, the Australian dollar may be vulnerable to more losses.
The outlook for Australia’s currency is also clouded by a surging US dollar.
US Federal Reserve chairman Jerome Powell last week reiterated the US central bank’s commitment to continue raising rates to tame inflation, which is likely to boost the greenback further.
It also doesn’t help that the prospects for China’s growth appear rather bleak, fuelling concerns of weaker demand for Australia’s commodity exports.
Goldman Sachs Group Inc and Nomura Holdings Inc downgraded their forecasts for the world’s second-largest economy further last month as Covid curbs and a property sector slump take a toll. — Bloomberg