Higher US rates grim news for our dol­lar

Townsville Bulletin - - NEWS -

THE Aussie dol­lar is likely to fall to about US70¢ by the end of the year in re­sponse to higher US in­ter­est rates and slid­ing com­mod­ity prices, UBS pre­dicts.

The in­vest­ment bank said the lo­cal cur­rency had now reached a “fair value” at about the US75¢ mark but said fur­ther falls were likely in com­ing months.

“We con­tinue to ex­pect fur­ther Aus­tralian dol­lar/ US dol­lar de­pre­ci­a­tion ahead,” UBS said, cit­ing falls in com­mod­ity prices and its forecast that the US Fed­eral Re­serve will raise in­ter­est rates in Septem­ber and De­cem­ber as key fac­tors.

UBS’s pre­dic­tion came as the Aussie traded at about US74.20¢ yesterday morn­ing, down from US74.69¢ on Fri­day but up from last week’s six- year low of US73.92¢ amid bad eco­nomic news from Greece and China. The dol­lar plum­meted last week fol­low­ing three weeks of tur­moil on the Chi­nese stock­mar­ket, which has lost al- most 40 per cent or more than $ US3 tril­lion ($ A4 tril­lion) in value.

UBS said if the Aus­tralian dol­lar did move lower, it could con­trib­ute to a re­cov­ery in the econ­omy’s non- min­ing sec­tor where busi­ness in­vest­ment has re­mained weak. The Re­serve Bank has pre­vi­ously said it would pre­fer the lo­cal cur­rency to be about US75¢ but some econ­o­mists be­lieve it will have to fall closer to US70¢ to boost growth.

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