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Australian dollar/US dollar analysis and forecasts: 2nd January 2008
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Market analysis
The domestic growth indicators have remained generally firm, although there has been some evidence of a slowdown in spending while employment growth has also slowed. The Reserve Bank remains concerned over inflationary pressure and suggested in recent minutes that policy would have been tightened in December, had there not been a credit crunch. Markets have priced in around a 50% chance of a further interest rate increase by February.
There are, however, important risks to the global economy which will have a negative impact on Australia, especially if the Chinese central bank continues to tighten monetary policy. There is also a risk that commodity prices will weaken. In this environment, the Australian dollar will struggle to sustain significant gains even if the weak US currency triggers gains at times. Overall, the Australian dollar will struggle to make any headway given the global growth doubts.
Risk factors:
The Australian dollar will be much more vulnerable once there is bias towards lower interest rates.
A sustained and heavy drop in commodity prices would hurt the currency.
A sharp slowdown in the Chinese economy would unsettle the Australian currency.
Forecasts:
| Currency | Spot (02-01) | 1-month forecast | 3-month forecast | 6-month forecast |
| AUD/US$ | 0.8810 | 0.8650 | 0.8250 | 0.8050 |
For Sterling/Australia forecasts, please see Sterling cross rates