Updated in November 2017
Forecasts for the Australian Dollar vary from bank to bank and from month to month. This article looks at the different outlooks and is updated regularly.
Volatility rocked currency markets in 2016, but stabilised in 2017. So far, the big surprise is how strong the Australian dollar has been. As a result, all the major banks have changed their forecasts higher for the rest of the year and in 2018. ANZ and CBA has made the most recent revisions, while the others changed their forecasts in early August.
ANZ has made the biggest upward revisions to its AUD forecast out of the 'Big 4' banks. It now expects the AUD/USD to rise to 83 cents by the middle of next year (82 cents end of 2017) before losing ground and finishing 2018 around 74 cents.
The Commonwealth bank upgraded its forecast for the Australian dollar 3 times so far this year and is the most optimistic for a higher AUD in 2018. CBA sees the AUD consistently rising from 80 cents end of 2017 to 85 cents by the end of 2018. This is mostly based on their weaker USD view.
Even though National Australia Bank raised its Australian dollar forecast in 2018 , it is still well below CBA and ANZ's forecasts. The bank expects the AUD to end the year at around 75 cents and end 2018 around 73 cents.
Like the other banks, Westpac upgraded its Aussie dollar outlook , but is still the most negative in its 2018 predictions. Westpac expects the AUD to rise to 76 cents by the end of Q4 2017 and 70 cents at the end of 2018.
1. Australian and US Interest Rates
2. Commodity Prices
3. Quantitative Easing in other western economies
The banks appear divided on how high the AUD will be trading by the end of the year. With the current exchange rate already trading above NAB's and Westpac's expectations, will they be following ANZ and CBA with another upgrade? And what could make the Aussie move higher?
There are plenty of possible reasons, but here are the 3 most likely:
1. The US economy slows down and their central bank fails to increase interest rates, pressuring the USD
2. The Australian economy picks up along with inflation, increasing the risk of interest rate hikes from the RBA
3. The Chinese government artificially stimulates its domestic economy, driving up demand for our commodities (and our dollar)
All of the banks see the AUD EUR rising near-term, but then declining mildly towards the end of 2018.
The National Australia Bank has raised its AUD EUR forecasts to end 2017 at 64 cents, which is a touch lower than the rest of the banks. NAB has end-2018 forecasts around 61 cents (or 0.6100).
Westpac is more bullish than NAB and is actually the highest of the 4 banks. Westpac estimates the AUD EUR to decline mildly to around 69 cents end of 2018, from about 73 cents at the end of 2017.
Our calculations show ANZ has the AUD EUR cross trading a touch higher than current levels by the end of the year at 68 cents, but then drops at the end of 2018 to around 64 cents.
Meanwhile CBA's AUD EUR rate remains relatively flat according to our calculations, just above 66 cents by the end of Q4 2018.
Ongoing political uncertainties around Brexit and an economic slowdown for much of 2017 has meant that GBP is the most undervalued major exchange rate against the USD after the Japanese Yen. This is a key reason why the major banks have a flat profile for the AUD GBP in 2018.
NAB is expecting the AUD GBP to stay around 0.5700 next year. Meanwhile, CBA has its AUD GBP crossrate steady around 0.6200-0.6300.
All the major banks we looked at expect the AUD/NZD exchange rate to maintain recent gains leading into the new year. A recovery in Australian commodity prices and rising risk appetite are key reasons stated for recent strength in the AUD NZD cross rate.
In 2018, the outlook is dependent on movements in the US dollar and economic strength in Australia and New Zealand.
General advice: The information on this site is of a general nature only. It does not take your specific needs or circumstances into consideration. You should look at your own personal situation and requirements before making any financial decisions.
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