Dollar tipped to slip despite being `Trumped’ by US events

Just when farmers thought the Australian dollar had resumed some export-friendly downward momentum uncertainty about the new US President’s impact on the global economy and business confidence has pushed the dollar up, while the US greenback is now dipping.

However, currency analysts believe the US slide may not last too long.

The Aussie dollar became the strongest performing currency among its peers in the G10 (Group of 10 most traded currencies) in January, riding up from less than US72 cents a month ago.

It rallied almost five per cent against the US dollar, settling around US75.5c in the past week.

National Australia Bank (NAB) exchange rate forecasters suggest its fair value could be closer to US77c in the next two or three months.  

But the 2017 outlook is still helpful for farm sector producers and exporters as foreign exchange pundits tip our exchange rate to dip towards US70c later this year, rather than gain more strength.

“Our forecasts see it in high US60c territory by early 2018,” said NAB agribusiness economist Phin Ziebell.

While that sort of depreciation might not be as significant as the big declines exporters enjoyed  in 2014 –  when the exchange rate fell from about US95c to lows of US76c, then US69c by late 2015 –  Mr Ziebell said the overall trend was still be helpful for agribusiness.

“Unfortunately, if you’re looking for the AUD to provide extra export support for grain sales into lacklustre global markets at the moment you are probably looking in the wrong place,” he said.

“But for many other commodities the lower exchange rate has tended to keep things on an even keel.”

Commonwealth Bank of Australia’s (CBA) agri strategy director, Tobin Gorey agreed this year’s dollar movements were “unlikely to be a game changer”.

However, he felt the currency was also unlikely to be a headwind for agriculture.  

Farmers should also be pleased to learn forecasts for a lower dollar in the second half of the year are partly based on expectations of Australian interest rates not rising any time soon.

“At this point we don’t expect interest rates in Australia to move up in 2017,” Mr Gorey said.  

“But markets are expecting some positive movement in the US economy and at least one US rate rise.

“If global interest rates are moving up closer to Australian rates our dollar will end up trading lower.”

Some weakening in hard commodity prices was also anticipated in the year ahead, which would also put pressure on the $A.

CBA currency analysts expected the Aussie to average US71c by late 2017.

Mr Gorey said while the unknown “Trump factor” was part of our recent stronger dollar story, the Trump presidency was also expected to trigger more spending in the US economy, driving a stronger greenback.

US financial services giant, Morgan Stanley, has also warned it is time to prepare for Australian exchange rate “weakness”.

It cited reduced mining commodity earnings, the US dollar regaining strength and “frailties within the Australian economy” as likely factors.

“We, however, are of the view the USD cannot be held lower for long amid improving data, expectations for fiscal spending and pricing in of Federal Reserve rate hikes,” the bank said in a recent research note.

It noted the current weaker US dollar followed “verbal intervention from President Trump” but any hawkish assessment of the US economy’s health by the Federal Reserve later this week “would likely set the USD on a stronger path again”.

NAB’s Mr Ziebell said regardless of recent exchange rate shifts the overall position for agriculture was far more comfortable than five years ago when the dollar was well above parity with its US counterpart.

“We’ve subsequently enjoyed a pretty good 12 months for ag exports –  one of the better periods for the sector for some considerable time,” he said.

“If we see the $A come off another five of six cents it will certainly be even more helpful for farm commodities like dairy, wool, and even grain, but in the case of meat products there’s not much more product available to export.

“No amount of dollar movement will make our beef more attractive to the Chinese, or even the US, if we don’t have the volume, especially while cheaper product is available from South America.”

Meat exporters competing with Latin American beef powerhouse Brazil, have, however, had some help in recent weeks as the Brazilian real recovered strength against the US dollar to trade at near its highest levels in 18 months.

“It’s a useful sign for exporters competing with Brazil’s beef, sugar or soybean exports,” Mr Gorey said.

“But I think our beef industry should probably be more concerned about building up a consistent supply capacity than thinking too much about the real.

“There’ll be plenty more buyers out there once we’ve got enough product to sell.”