Outlook for Australian dollar, New Zealand Dollar and Canadian Dollar brightens as the threat of a 'fiscal cliff' evaporates say analysts at RBS

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Category: Australian Dollar News

Written by Sam Coventry

"We are forecasting a recovery in the AUD to 1.05 by year end. Part of this forecast reflects an expected weakening in the USD in the second half of this year" - Greg Gibbs at RBS.

The outlook for the commodity currencies has improved say RBS in a monthly FX note.

RBS say that while they have reduced the potential for USD weakness versus the EUR and other European currencies for late 2012, they have not adjusted lower their forecasts for the CAD, AUD or NZD versus the USD.

"If anything, the removal of “fiscal cliff” risk to global growth, along with likely Fed QE3 during 3Q2012, bode better for the commodity currencies and we maintain our generally constructive outlook," says the note. (For the latest FX forecasts please visit our IMT site, access is Free via this Facebook entry path).

Australian dollar forecast

With regards to the Australian dollar (Currency:AUD), while the outlook is lowered, RBS this does not necessarily mean the Australian dollar will depreciate in value

"We are forecasting a recovery in the AUD to 1.05 by year end. Part of this forecast reflects an expected weakening in the USD in the second half of this year," says Greg Gibbs at RBS.

Canadian dollar outlook

Commenting on the Canadian dollar (Currency:CAD) forecast is Brian Kim at RBS:

"We took profit on our short USD/CAD recommendation as the pair traded above our stop level during a period of lowered risk-seeking at the end of May.

"The growing economic divergence between the Euro-area and North America, however, benefited our short EUR/CAD recommendation, which we closed when we reached our take- profit level of 1.2780 and realised a 5.0% total return.

"Our short-term fair value models suggest there could be further CAD gains ahead versus both the USD and EUR. But for now, we do not hold any CAD exposure given the current level of external uncertainties."

By year end USD/CAD is seen at 1.028.

New Zealand dollar

The New Zealand Dollar (Currency:NZD) has remained closely aligned to the AUD, experiencing a similar decline in commodity prices recently and undermined by the fall in global confidence.

RBS note the RBNZ could hike interest rates ahead of market expectations, but, the poor state of the global economy continues to pose a risk:

Gibbs says:

"The RBNZ expressed fears of further slowing in global demand and lower commodity prices and forecast no rate hike until at least Q2-2013.

"We see some risk that rates need to be raised sooner as inflation pressure builds due to the Christchurch reconstruction and strength in housing spilling over to broader consumer activity. However, events offshore remain a considerable source of near term risk and longer term uncertainty."

By year end NZD/USD is forecasted at 0.835.