How low can the Aussie Dollar go?

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A number of factors help explain the fall back in the Australian dollar in recent weeks, and there’s an increasingly good chance the Aussie could finally be breaking to the downside, after an extended two-year period of trading just above parity to the US dollar.

The drivers

The Reserve Bank of Australia surprised markets by cutting the official cash rate to 2.75% earlier this month, and has indicated it still has “scope” to cut interest rates further, given our currently low rate of inflation and likely below-trend pace of economic growth this year.

Confirmation in the May Budget by the Gillard Government that they won’t be able to achieve a budget surplus this year – in fact, the deficit over the next two years will be higher than markets expected – has also raised international question marks over our reputation for sound fiscal management.

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