ETC | Aussie Dollar to plunge down to 40 US cents(?)

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​One of the biggest considerations for potential immigrants is Aussie Dollar. During the financial Crisis in 2007-2008, the Aussie dollar hit the record-low due to uncertainty of Global economy. However, the value of Aussie dollar had accelerated during the mining Boom, reaching $ 1.2 to U.S. dollar. Diminishing natural resource demands globally led by China, with a record-low cash rate by RBA, has made the Aussie dollar depreciated again, in a range of 70 to 75 cents to U.S. dollar. It would provide more affordability to Global citizens who are considering an immigration to Australia.

This Monday, a fund manager who predicted before most economists that the Reserve Bank of Australia would cut its benchmark below 2 percent, says there’s a risk that the Aussie dollar could almost halve to an unprecedented 40 U.S. cents, a level significantly below where most forecasters see the currency.

BT Investment Management’s Sydney-based head of income and fixed interest, Vimal Gor, who oversees the equivalent of about $11 billion, said in a newsletter that the outlook for the currency was “worrying” and that his previous view on it had been overly optimistic.

The Aussie, which bought 74.15 cents as of 2 p.m. on Friday in Sydney, has averaged 88 cents over the past decade and the post-float low is 47.76 touched in 2001.

The median forecast in a Bloomberg survey of analysts is for the currency to weaken to 72 by year-end and strengthen in subsequent years.

Gor also predicted that the Reserve Bank of Australia will be forced to cut its cash rate from 1.75 percent to 1 percent or lower.

He pointed to what he described as the “weakness” in the composition of Australia’s most recent economic growth figures and the risks posed by the country’s reliance on foreign capital.

“The Australian dollar is at far more risk than most people think,” wrote Gor, the fund manager’s head of income and fixed interest.

“A shock downside could easily see it move to 40 cents against the U.S. dollar if current trends continue, commodities fall to lows again and economic growth deteriorates.”

The Australian currency has traded in a range of about 68 to 78 cents so far in 2016 and has appreciated 2.5 percent this month as global raw material prices have rebounded and entered a bull market.

It also received a boost in the past week as the RBA opted to keep its benchmark rate unchanged and a weaker-than-expected U.S. jobs report prompted investors to dial back expectations for interest-rate increases by the Federal Reserve.

Gor, who said last month that it was a “distinct possibility” the RBA would follow its peers in Europe and Japan in taking rates below zero, has views that are at odds with a majority of analysts.

It’s not the first time. Back in March 2015 he predicted that the RBA would reduce its benchmark -- then at 2.25 percent -- to 1.75 percent and Gor said he could foresee a scenario where rates went below 1 percent.

At the time, the median estimate of economists surveyed by Bloomberg was for the cash rate to bottom out at 2 percent.

By Benjamin Purvis | Bloomberg