Analysts remain divided over Aussie dollar

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The Australian dollar threatened to fall below the US70c mark last Friday before finding strong support which seems for the time being, the Aussie currency has it’s fair share of supporters who believe that there is room for a rally.

Some analysts also believe that the Australian dollar is looking cheap at the moment while others see further falls on the cards saying it is only a matter of time before we see the price plunge below US70c into the $60’s.

There is growing speculation that the RBA is on the verge of slashing interest rates to boost inflation figures and the question remains is this news already priced into the market and if it is, the Australian dollar may have room to grow and especially with some predicting that inflation figures are bound to improve.

"So why on earth do we suggest buying AUD anyway? Due to non-domestic factors." says Martin Enlund, chief FX strategist at Nordea Markets.

"A weaker CPI trend in Australia is mostly a lagged consequence of the tighter financial conditions in Asia in 2018. The softer financial conditions seen throughout 2019 will likely soon spill-over to a re-increase in the Australian CPI. We bet that the Q2 inflation report will be more upbeat than the Q1 report that we received last week." He added.

Other analysts are not as confident that the upcoming rate cuts are already priced in to the market and believe the RBA could move to slash interest rates as early as next week, even disregarding the upcoming General election to elect a new Prime Minister

“Out of interest, the RBA has changed interest rates twice in election campaigns in recent times – raising rates in the 2007 election campaign and cutting them in the 2013 election campaign. So if the RBA feels the need to move it will even in election campaigns,” says AMP’s Shane Oliver.

“The longer inflation undershoots the 2-3% target, the greater the risk that the target will lose credibility,” says Dr. Oliver. “This, in turn, will see low inflation expectations become more entrenched making it in turn even harder to get inflation back to target and leave Australia vulnerable to slipping into deflation during the next economic downturn.”

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