Why the $A could be heading lower
While tax reform policy in the US continues to be delayed, and while implementation of the US Federal Reserve’s monetary policy decisions remains slow – both have positive implications for US economic growth – the US dollar has remained relatively low, ensuring the $A has been stubbornly strong despite the Reserve Bank of Australia’s low interest rate settings.
But progress in these areas, led by the Federal Reserve and the US government respectively, could result in currency valuations tipping the other way, Oliver reckons.
“If the US economy does recover and tax cutting plan is passed into law I think ultimately it will be that will result in a weaker Australian dollar and stronger US currency,” Oliver says.
Indeed, Oliver points out that a fall in the value of the Australian dollar and the rise of the US dollar has been a factor in share markets this year.
“More recently we are seeing indications of US economy growth with the start of Quantitative Tightening and with the government moving to push aggressively to get tax cutting plan through it should boost the [US] economy and push the US dollar upwards,” he says.
About the Author Dr Shane Oliver, Head of Investment Strategy and Economics and Chief Economist at AMP Capital is responsible for AMP Capital’s diversified investment funds. He also provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets.
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