What will happen to the Aussie dollar in 2013?

Francisco Solar

The Australian dollar has been the darling of the markets in recent times, reflecting a relatively stable economy and a strong resource exposure to China. In an environment where interest rates are near zero among G10 nations, Australia is a standout with the current level of interest rates at 3%. This makes the Aussie a bellwether for the market; ie, in times of increased confidence the Aussie tends to move higher, and in times of risk aversion it tends to underperform.

What do we expect in 2013? There seems to be a wealth of data showing some stabilisation in Europe and signs of robust growth in China and the US, which augurs well for the Aussie. However, if the Reserve Bank continues cutting rates and countries that have had a loose monetary policy stance (China and US) start reversing course, this may start working against the Aussie.

Thus, a change in the once supporting factors of a large interest rate differential and strong economy may well give the markets an excuse to check the Aussie’s run higher.

My personal view has the Aussie towards the all-time high, above $US1.10, in a bullish scenario, or towards 98¢ in a bearish scenario. I am on the side of those calling for a move lower in the Aussie.

Francisco Solar, currency dealer, easyforex


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