Fears Australian dollar facing 'benign collapse' to $US66¢ Read more: http://www.smh

[mick silver]

February 24, 2014

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Death of the Dollar 2014 (http://www.googleadservices.com/pagead/aclk?sa=L&ai=CAVcJ4wwZU4qVKIq0kwTklYDwA9aeotAFzp2_hoABwI23AR ABIPLF7QgoBFC6i-_T_v____8BYMnG0oj8o8gQoAHC_rHaA8gBAagDAaoE1QFP0ObT jtI0QTRsGCdZo8VeF8PCEiGKCFVLVQ7figvJIJkSFVaVSarN7C 3uZpCZG8NcBno7wBjZvXu4CHQQ5LgQtZSq_iXIPUJq6Nrmzkc9 kG8JVGGx9RKrAWtZy9Tris9NqcbKSIwjctTcw49W_tlq00RRtA IHy4rp8J-a9_EAccFE8XiOZ_jfkmF8CA85cVzNXXMjdc1NuA5d_JrcocogL JlBEyQR3pxFDY8b3tOJpfT44Pmo17MAFPSVQNJVLmmZDbC6aSh h7ThcPmKm0nKM1hO7W3-IBgGAB6aBziU&num=1&cid=5GhoTxukEZd_r-31QhNMLWF3&sig=AOD64_3V6q9sKM20dSYas2BXETRgpf-r5g&client=ca-fairfax-age_js&adurl=http://subscribe.outsiderclub.com/45477)outsiderclub.com/Falling_Dollar (http://www.googleadservices.com/pagead/aclk?sa=L&ai=CAVcJ4wwZU4qVKIq0kwTklYDwA9aeotAFzp2_hoABwI23AR ABIPLF7QgoBFC6i-_T_v____8BYMnG0oj8o8gQoAHC_rHaA8gBAagDAaoE1QFP0ObT jtI0QTRsGCdZo8VeF8PCEiGKCFVLVQ7figvJIJkSFVaVSarN7C 3uZpCZG8NcBno7wBjZvXu4CHQQ5LgQtZSq_iXIPUJq6Nrmzkc9 kG8JVGGx9RKrAWtZy9Tris9NqcbKSIwjctTcw49W_tlq00RRtA IHy4rp8J-a9_EAccFE8XiOZ_jfkmF8CA85cVzNXXMjdc1NuA5d_JrcocogL JlBEyQR3pxFDY8b3tOJpfT44Pmo17MAFPSVQNJVLmmZDbC6aSh h7ThcPmKm0nKM1hO7W3-IBgGAB6aBziU&num=1&cid=5GhoTxukEZd_r-31QhNMLWF3&sig=AOD64_3V6q9sKM20dSYas2BXETRgpf-r5g&client=ca-fairfax-age_js&adurl=http://subscribe.outsiderclub.com/45477)
Media is Wrong About Inflation Find Out What's Really Going On



http://images.theage.com.au/2014/02/24/5194858/bs-wide-dollar-20140224150104509177-620x349.jpg
The Deutsche Bank forecast would see the exchange rate fall to its lowest levels since the financial crisis. Photo: Ian Waldie
The Australian dollar could face a "benign collapse" to US66¢ by the end of next year amid falling commodity prices, declining mining investment and reduced government spending, Deutsche Bank says in one of the most bearish forecasts for the local currency.
The plunge in the Australian dollar to the mid-US60¢ would come about if the Reserve Bank keeps interest rates on hold until 2016, if the US lifts its rates by mid-2015 and if the United States' dollar continues to strengthen, Deutsche Bank's chief economist for Australia Adam Boyton said.
The forecast would see the exchange rate fall to its lowest levels since the financial crisis. The currency was fetching US89.60¢ in late trade on Monday, and has so far risen 0.5 per cent against the US dollar this year. It shed more than 14 per cent of its value against the US currency last year.

http://images.theage.com.au/2014/02/24/5195192/capture1-620x349.jpg
Photo: Deutsche Bank, Bloomberg Financial LP
"Critically, we would view this as a benign 'collapse' in the Australian dollar; not one sparked by a domestic or offshore 'crisis'," Mr Boyton said in a research note, adding that the new projections fell below Deutsche Bank's current end-2015 forecast of US75¢.

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"Our point instead is that a much lower Australian dollar should be considered a 'base case' and reflective of a 'central forecast'; not some 'tail risk' event. This suggests that the risks around our current end-2015 ... are skewed to the downside."
Mr Boyton said the long-term weakness in the dollar could be key for the Australian economy as the unprecedented boom in the mining sector comes to an end. But over the next few months, the local currency could rise with an improvement in the labour market.

http://images.theage.com.au/2014/02/24/5195194/capture2-620x349.jpg
Photo: Deutsche Bank, Bloomberg Financial LP
The German bank joins US investment bank Goldman Sachs in a similarly bearish outlook for the local currency. Goldman Sachs analysts tips the currency to tumble below US70¢ in the next two years as reserve managers at central banks reduce their demand for the Australian dollar, and as global demand for commodities falls.
The median forecast for the Australian dollar, according to Bloomberg, is for the currency to fall to US85¢ by end-2015. At the top end of the forecasts, analysts expect the dollar to rise to US97¢. The lowest forecast for the end of next year is US75¢.
RBS senior currency strategist Greg Gibbs said the bearish projection could be possible if China's economy struggles.

http://images.theage.com.au/2014/02/24/5195196/capture3-620x349.jpg
Photo: Deutsche Bank, Bloomberg Financial LP
"A US65¢ number is quite possible in a negative scenario for China and much weaker commodity prices, and maybe a degree of financial stress in China, which has bigger global implications. Those are the kinds of things you need to get it down to those levels," Mr Gibbs said, adding that the Australian dollar had become a risk proxy for China.
He said it would be difficult for the Australian dollar to return to higher levels as mining companies keep their costs reined in and with improved business confidence driven by a lower exchange rate.
Mr Boyton's scenario for a mid-US60¢ came through a modelling of interest rate differentials between yields on 10-year US and Australian government bonds, one of the factors that drives the currency's movements.

http://images.theage.com.au/2014/02/24/5195197/capture4-620x349.jpg
Photo: Deutsche Bank, Bloomberg Financial LP
"A narrowing in the Australian-US bond spread ... to around 25 basis points come end-2015, start-2016 suggests a significant decline in the Australian dollar," he said.
"Indeed our preferred way of expressing the bond spread against [Australian-US dollar cross rate] raises the prospect of the Australian dollar trading in the mid-to-low US60¢ come end-2015."
The modelling showed that a large part of the Australian dollar's fall could come about next year, as the bank expects the Fed to start lifting interest rates from their near-zero levels in mid-2015 after it completes its tapering of its unprecedented monthly bond-buying program.

http://images.theage.com.au/2014/02/24/5195211/newchartnew-300x0.jpg
The highest, lowest and median forecasts for the Australian dollar against the US dollar over the next few years. Photo: Bloomberg
At the same time, the strengthening of the US dollar, which currency strategists expect to take place as the Fed withdraws its stimulus this year, would also contribute to the weakening local currency, Mr Boyton added. Deutsche Bank tips the US dollar to rise by 20 per cent against the euro and by 17 per cent against the Japanese yen over the next two years.
Deutsche Bank predicts that the Reserve Bank would keep the cash rate on hold at a record low of 2.5 per cent over the next two years, with the fall-off in mining investment hitting the economy harder in late 2014 and early 2015. Government spending is already projected to tighten in the later years of federal budget projections, while state government expenditure is also tipped to remain soft, forcing the central bank to maintain a loose monetary policy, the bank said.
Meanwhile, the decline in the terms of trade - a ratio that measures export prices to import prices - could weigh on the jobs market and keep the unemployment rate at multi-year lows of about 5.75 per cent until early-2016, Deutsche Bank projected.

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Read more: http://www.smh.com.au/business/markets/currencies/fears-australian-dollar-facing-benign-collapse-to-us66-20140224-33cfl.html#ixzz2vEMS7yNv

[Glass]

I can't wait until the end of 2015. I need 60C about now. For me it would be good short term.

But reading in the Sister publication of the SMH (Sydney morning Herald) which is the Age. There is a completely different story. So which is it?

Dollar surges to year high on positive data

The Australian dollar has jumped to a three-month high after a series of stronger-than-expected economic data boosts confidence - and traders see further upside for the currency.

This morning, the local unit was trading at 90.96 US cents, up from 90.12 cents on Thursday. It traded as high as 91.13 US cents earlier in the session, its highest level since December 11.

The dollar rose above 90 US cents yesterday after the release of surprisingly strong retail sales figures and a large rise in the trade surplus. This followed Wednesday's better-than-expected gross domestic trade figures.

Westpac economist Imre Speizer said over the short term he expected a further rise in the dollar above 92 US cents as momentum was strong. Over the mid term the RBA’s neutral policy bias and net short speculative positioning supported the currency.

‘‘However, there remains a question mark around Australia’s economy, with tension between strong business sentiment and weak consumer sentiment not expected to be resolved until the second half of this year,’’ Mr Speizer said.

Focus is now shifting to RBA governor Glenn Stevens' testimony before the House Economic Committee at 9.30am and any comments made about the recent rally in the dollar will be closely watched.
"Given Tuesday’s statement (by the RBA following its rates decision) already made an attempt to talk the dollar, chances are Stevens will be looking to continue with this rhetoric," said IG strategist Stan Shamu.
"Further 'jawboning' could send the dollar lower and see support in the 0.90 region tested again."
The recent data have given traders confidence in the Australian economy and lifted demand for the Aussie, OM Financial senior client FX adviser Stuart Ive said.
"A series of better-than-expected data has resulted in a much more positive outlook for the Australian economy," he said.

link to story (http://www.theage.com.au/business/markets/currencies/dollar-surges-to-year-high-on-positive-data-20140307-34asy.html)