CANBERRA: The Australian dollar consolidated gains it posted overnight in the US on the back of a falling US dollar, holding on to most of its rally in Asia despite more news of failing consumer confidence. The Westpac-Melbourne Institute consumer sentiment index fell by 5.7% in December from November to 91.1 points in a dire reading that may increase the chances of further interest rate cuts next year.
Unemployment is already at its highest level in 12 years and many forecasters, including some from major banks, are expecting the jobless rate to rise further next year. SAt 0530 GMT, the Australian dollar was changing hands at US$0.8322, up from US$0.8235 late Tuesday. Consumer confidence slumped in December as sentiment weakened in response to a sharp slowdown in the economy in the third quarter. Budget deadlock in Canberra was also a source of the discontent.
Traders said the currency likely remains fundamentally weak as the price of iron ore, the country’s largest export, remains under pressure.
Downgrades on the outlook for the Australian dollar continued with St.George Bank slashing its forecast for the currency at the end of 2015 to US$0.7500 from US$0.8200.
Chief economist at St. George, Besa Deda, said the new forecast follows a review of the bank’s interest rate forecast.
It now seems unlikely that economic growth will gather sufficient pace during 2015 to warrant lifting the cash rate,” Ms. Deda said. The risk of a cut in the cash rate has also increased, she added.
Expectations that the central bank will need to cut interest rates further in 2015 have grown rapidly over the past month on data showing that growth in the resource-rich economy slowed to a crawl in the third quarter as tumbling commodity prices and an accelerating contraction in mining investment outweighed growth in exports. The plunge in commodity prices this year, which has included a 50% fall in the price of iron ore since January, has hit the country hard.
