Analysts trimmed their long term forecast for the Australian dollar, a Reuters poll showed, as markets priced in more interest rate cuts by the country's central bank, including unconventional monetary easing measures. The median 12-month forecast fell to $0.6900 from $0.7000 a month ago. But analysts stood pat on their one-month and six-month expectations, of $0.6700 and $0.6800, respectively.
The Aussie is now at $0.6715 and analysts expect it to end 2019 around the A$0.6700 level. Most responses for the survey came in before the Reserve Bank of Australia's (RBA) widely expected quarter-point rate cut on Tuesday, its third such move this year, that left the cash rate at a record low of 0.75%.
Financial futures are now pricing in an 80% chance of a fourth cut to 0.5% by Christmas after the RBA said it was prepared to do more to reinvigorate a slowing domestic economy. Despite a rebound in home prices in recent months, the overall property sector is yet to enter a sure-footed recovery phase, while inflation remains tepid and unemployment is ticking higher.
With rates approaching near-zero levels and the government reluctant to boost spending, analysts expect the central bank to do the heavy lifting on policy with many even speculating the likelihood of quantitative easing (QE). "Fiscal stimulus would be ideal, and there is plenty of capacity, but the government is so far sticking to its 2019-election campaign promise to deliver surpluses," said Paul Bloxham, HSBC's Chief Economist for Australia, New Zealand and Global Commodities, in a note.
"Without a fiscal lift, what we described back in March as a 'What if', QE downunder, is looking increasingly likely." The Australian government last month said the budget was in balance for the first time in a decade and that a surplus this year was a near certainty, but a massive fiscal stimulus to boost jobs and growth was still not on the cards.
The central bank's rate cuts this year have barely boosted activity outside the housing market, where recent data has shown an uptick in home prices with those in major markets Sydney and Melbourne showing a sharp rise. New home approvals are still endemically low, with some economists expecting construction-related job losses in coming months which could take the unemployment rate higher.
The survey participants downgraded expectations for the New Zealand dollar across the horizon, after it slumped to around four-year lows of $0.6204 earlier this month. The median three-month poll forecast the kiwi at around current levels of $0.6300 but lower than 0.6400 in the previous poll amid expectations for further policy easing in New Zealand.
The currency is seen stuck at $0.6300 in six months' time before inching up to $0.6500 in a year. Earlier this week, data showed business confidence in the country fell to its weakest level since September 2015 in another sign that further stimulus might be needed.
New Zealand's economy has been plagued by poor business sentiment for several months now, which was one of the reasons why the Reserve Bank of New Zealand (RBNZ) surprised investors by chopping the official cash rate by a larger-than-expected 50 basis points in August. It left rates steady at its most recent meeting last month.
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