The constantly weakening chances of correcting the US dollar have led NAB to admit that it is now difficult to expect a sharp fall in the AUD / USD pair this year, bank strategists write, including Rodrigo Catherine. In this regard, the bank raises forecasts for AUD / USD in the third quarter, forecasting now the rate at 0.78 against 0.73 earlier. The bank raises its forecast for the end of the year by AUD / USD to 0.75 from 0.70. The rate is currently 0.7920. In 2018, the minimum will be about 0.73, against 0.70 in the previous forecast.
The December increase in the Federal Reserve’s interest rates will trigger a short-covering rally in the US dollar, but one factor is unlikely to reverse the downward trend since January. At this stage, it would be too optimistic to assume that the US administration will receive the full support of the Congress on tax and other reforms, which is a risk for our base forecast, the expert says. For AUD, the December rate increase of the Fed will modestly lower commodity prices at the end of the year and create the risk of a slight deterioration in sentiment that has reached high levels in recent months. In this case, you can see the Aussie correction closer to 0.75 by the end of the year. The basic forecast is that the Fed will do more than the markets expect for next year, and some form of tax reform will take place. Both these factors are positive for the dollar.
Commodity prices will also face a decline in Chinese demand, compared to 2016 and 2017, after the congress of the Communist Party of China. At least during the first half of the year there is a very real prospect that rates in the US will overtake the Australian rates, which carries the risk of a decline in AUD.