The Australian dollar slid below parity with the greenback on yesterday and analysts tipped it could fall further as speculation mounts that the US could wind back its quantitative easing policy.
The “Aussie” touched US$0.9968 before recovering to US$0.9995 late in the day, after Saturday briefly dipping under parity in offshore trade for the first time in 12 months on fears the mining-powered economy was slowing.
Analysts said the currency’s robust run may have peaked as Australia’s historic boom in mining investment plateaus, coupled with speculation that the US Federal Reserve will ease its bond-buying program.
It follows a Wall Street Journal story over the weekend that the Fed had come up with a strategy to wind down its US$85 billion dollar per month bond-buying program, although it has not been decided when to start.
“The Aussie dollar has started the week on the back foot, struggling to retain parity against the greenback,” CMC Markets trader Niall King said. “As speculation mounts that stimulus will be reduced, the increasing relative strength of the US dollar has, as a by-product, eased some headaches for Australian exporters at least.”
The strong Aussie has hurt some Australian industries, with tourism, manufacturing and education exports particularly hard-hit, and the central bank last week slashed interest rates to a record low of 2.75 percent.
In doing so it cited the need to stimulate Australia’s non-mining economy.
The bank expects Australia’s economy to expand at below-average pace this year, with growth of 2.5 percent and inflation of 2.25 percent.
The government will release updated economic forecasts today.
Adding to the bearish tone for the Aussie was a move by Barclays to lower its outlook to US$0.93 over the next year compared with US$0.95 previously, citing the interest rate cut.
Meanwhile, the US dollar broke through the ￥102 level in Asian trading yesterday after Tokyo sidestepped criticism over the unit’s steep decline at a weekend G7 meeting in Britain.
Speculation that the US Federal Reserve could be the first among major central banks to roll back its huge monetary easing policy also boosted the dollar as data pointed to a brighter outlook for the world’s biggest economy.
Markets were keeping a close eye on US retail sales expected later in the day and a batch of Chinese economic data, dealers said.
“The general theme is that the US dollar is dominating proceedings,” said Tim Waterer, senior trader at CMC Markets in Sydney.
The greenback bought ￥102.04 in morning Tokyo trade, against ￥101.62 in New York on Friday. It settled back to ￥101.85 later yesterday afternoon.
The euro also gained on the Japanese currency at ￥132.16 from ￥132.03 in US trading, while it weakened against the dollar to US$1.2974 from US$1.2993.