Despite a long-term upswing in the value of the Australian Dollar (AUD), Big Four bank, Westpac believes there’s still potential for more growth.
Noting they had recently revised their outlook, Westpac explained the upswing of the Aussie Dollar began last March when the AUD was valued at 0.60 compared to the US greenback.
Their prediction of a future rise comes despite the fall in the AUD from around USD0.80 in February to the current USD0.74.
In their most recent outlook, they’ve shaved their target levels for the end of 2021 from USD0.80 to USD0.78.
Meanwhile, the bank’s target expected peak in the second half of 2022 is estimated to fall within the range of USD0.85 to US0.82. They’re expecting a solid net US$0.08 lift in the AUD from its current level of the course of next year.
There were various reasons for the gradual upswing, which started in March last year, the bank noted.
According to Westpac, from March 2020 to February 2021, there was:
- A 30 per cent lift in Australia’s commodity price index
- Global recognition of Australia’s initial success in dealing with COVID-19
- An unexpectedly aggressive boost to fiscal policy
- The RBA’s reluctance to adopt quantitative easing (until November)
- The non-negotiable stance against negative interest rates
- Australia’s rapid economic recovery with pre-coronavirus activities being reached in the March quarter
- The usual benefit which AUD receives from the markets’ acceptance of the strong global recovery underpinned by the rapid development of vaccines
These factors will be the dominant reason for the expected lift in the Australian Dollar into the future.
Of course, the slow vaccination program and lockdowns in the first half of 2021 have impacted the AUD. Westpac suggested COVID-19 vaccination implementation and fewer lockdowns are likely to pivot into a positive result from the December quarter and into 2022.
“We are expecting this uplift in the AUD but Australia’s current malaise, with lockdowns and low vaccination rates, is likely to weigh on AUD until we gain sufficient vaccine coverage,” Westpac Chief Economist Bill Evans noted.
“With high levels of vaccination expected by end November, we expect that governments will be much more cautious in resorting to lockdowns, laying the foundations for the US3¢ lift in AUD by year’s end.”
Westpac is also expecting a modest depreciation of the USD in the first half of 2022, estimated to be about 3 per cent.