Australian dollar set to rise into year end

Economists responded by slicing their rate forecasts and gearing up for a cut next week. But they have since had a change of heart for a possible budget day rate cut, with November now more likely.

The Australian dollar’s performance in the fourth quarter will remain reasonably sensitive to volatility and US equity market performance, said National Australia Bank’s head of foreign exchange strategy, Ray Attrill.

NAB is sticking to its forecast for US74¢ by the end of the year and Mr Attrill said “we are happy restating that”.

The looming US presidential election is likely to be “fairly all consuming” for markets ahead of the November 3 vote, he said.

While the perception is broadly that the least risk asset friendly outcome would be a Biden win and Democrat control of the Senate (a sweep) and consequent tax grab, the improved likelihood of a Biden win after the first presidential debate on Wednesday did not really dent risk appetite, Mr Attrill said.

More stimulus

“The market is not taking fright,” he said, suggesting optimism that the US may introduce more stimulus before election day is taking precedence over a possible clawing back of tax receipts.

Better US economic data is also generating a sense of optimism that fears for the US economy in the fourth quarter “may be a bit overblown” as well, Mr Attrill added.

Westpac is sticking to its year-end currency forecast, of US75¢, for the Australian dollar.

“The basic way we get from US71¢ to US75¢ is a softer US dollar,” said Westpac senior currency strategist Sean Callow.

“By the year end we see US dollar weakness mostly resuming, with the Federal Reserve battling with a patchy economy and doubts about stimulus.”

Still, he warned the path through to end of year gains for the Australian currency would not be easy given the upcoming US polls. “There’s no way we are going to get through this smoothly. There are too many permutations,” the strategist said.

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