AUD/USD Weekly Price Forecast – Australian Dollar Breaks Out
Investors await Australian dollar plunge as wildfires hit economy
Banking strategists recommend short selling currencies ahead of expected interest rate cut.
Investors in the foreign exchange market are increasingly betting that Australia’s unprecedented wildfires will harm the country’s economy, and some of them are selling the Australian dollar, expecting it to fall.
Beyond the billion-dollar damage bill, analysts expect a hit on consumer sentiment, retail spending and tourism, which accounts for more than 3% of the economy..
The crisis could push the Reserve Bank of Australia (RBA) to cut interest rates to support its already sluggish growth. This situation will be negative for the national currency, since it tends to restrain capital inflows..
«Fires are undoubtedly an additional burden for the economy and should lower barriers to reduce the RBA rate», – said Terence Wu, strategist at OCBC Bank in Singapore.
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He offered to short the Australian dollar with a target of $ 0.6728. Aussie traded at $ 0.6875.
Short sellers benefit from falling currency prices by borrowing the currency they want to short and selling it right away – hoping to buy it back for less.
Price swings, despite better-than-expected retail sales data on Friday, indicate that Wu is not alone in his estimates. The aussie had its worst week since September, falling 1% against the dollar, while other Asian currencies rallied.
«[Fires] certainly play in favor of the view that the RBA is likely to be more inclined to cut rates», – said the head of FX strategy at the National Bank of Australia, Ray Attrill, who expects a decline. in February. – This was definitely a factor that affected the prices of the money market».
Insurance losses amount to $ 700 million, according to Australian Insurance Board estimates.
Moody Agency&# 39; s Analytics said the total cost of the fires, which destroyed more than 10 million hectares of land, could easily exceed the cost of the deadly 2009 fires, which burned 450,000 hectares, at an estimated 4.4 billion dollars.