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Australian Bank Lower U.S. Dollar Forecasts

March 18, 2008 at 11:55 by Andriy Moraru

U.S. DollarAccording to Australia’s largest mortgage provider, Commonwealth Bank of Australia, the U.S. dollar will perform worse than experts previously expected for this year.

The strengthening financial crisis in the United States forced the Federal Reserve to cut rates at a greater pace than it was expected in the bank’s previous forecast. The  U. S. dollar has already dropped about 5% against the Australian dollar and 3.9% against the New Zealand dollar from the beginning of the year. A major interest rate cut in U.S. is expected today, that can also hurt the dollar’s Forex positions.

Commonwealth Bank of Australia now says that the U.S. dollar is going to depreciate to 0.90 on AUD/USD by the year end; the previous estimate was at 0.85. As of 9:45 GMT AUD/USD is trading at 0.9260.

New Zealand dollar’s estimate was also lifted against the U.S. dollar — NZD/USD is now expected to trade at 0.75 against the 0.70 previous estimate. Currently NZD/USD is trading at 0.8078.

Richard Grace, chief currency strategist of the Commonwealth Bank of Australia explains the forecasts change:

There is a growing likelihood that the recovery in the U.S. economy is more drawn-out than previously anticipated given the severity of the credit crisis currently impacting the U.S. financial sector… The  U. S. dollar is entering a period where the risk of a large overshoot in the foreign exchange market has increased substantially. The possibility of coordinated central bank intervention has increased. The most obvious intervention would come via the euro and the yen.

If you have any questions, comments or opinions regarding the US Dollar, feel free to post them using the commentary form below.

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