General | Feb 03 2006
Anyone looking nervously at the Australian dollar exchange rate over recent weeks should take heart from views held by analysts at Smith Barney Citigroup.
Although the broker concedes that if a weaker AUD signalled the beginning of a sustained correction in commodity prices and the country’s terms of trade, then the outlook for the Australian economy would likely be deteriorating, Citigroup is quick to point out that in its opinion, commodity price weakness is not a sign that economic prospects have deteriorated, but that it “reflects the rebalancing of global growth.”
This in turn has resulted in changes to interest rate expectations across the world.
In addition, while an AUD close to US70c is seen as positive for manufacturers and lifts the competitiveness of exporters, the analysts feel the currency’s fall could be “short lived if the longer term downtrend in the USD re-emerges” as they expect it to.
Furthermore, Citigroup economists see the outlook for global growth as “remaining positive” as reflected in their upgraded forecasts.
Although the bank’s commodity analysts are expecting prices to peak later this year, the downturn is not expected to be sharp, Citigroup says.
Citigroup expects the AUD to stand at US76c in 12 month’s time, as it expects the Fed’s tightening cycle to be over by then and that global FX markets will then “shift focus back on to the task of funding the large US current account deficit.”
