With the interest rate differential between Australia and the United States expected to widen in 2019, the Australian dollar is coming under pressure. The Federal Fund’s rate in the United States is currently at 2.25%, versus the Reserve Bank of Australia’s (RBA’s) cash rate of 1.50% – with the Fed likely to lift rates, and the RBA moving recently toward an easing bias.
Most strategists are revising down their forecasts for the Australian dollar, with expectations of mid-70s US cents by the end of 2019 turning significantly lower – even into the 60s. For example, HSBC now expects the Australian currency to fall to US66 cents by the end of the year, a level not seen since the depths of the 2008-09 global financial crisis (GFC).
The A$ lost almost 10% against the US$ last year to become the worst-performing of the major currencies against the greenback, hurt by the escalating US-China trade war and the prospect of US interest rate rises. The A$ tends to rise when markets are in "risk-on" mood, but falls when markets grow wary.