Will the Australian dollar drop to 50c?


There are significant headwinds facing the economy that will most likely have an impact on the Australian dollar and push it lower over the next six to nine months. First, the Australian economy is weak, second there are ongoing declines in commodity prices and, third, the US Federal Reserve will raise interest rates for the first time in seven years.

All these will flow through to a drop in the Australian dollar - that will not be dramatic or rapid - to 70c by the end of the year and 65c in the next six to nine months. If things get quite pressured, the $A could go lower.

The fall in the dollar is ultimately a good thing for the economy as it acts as an effective safety valve when imbalances build up in the economy. It will lead to investment in the tourism, high-end manufacturing, education and business services' sectors.

Will dollar go down to 50 cents?

What it means for investors is that it will pay to leave some exposure to shares and bonds unhedged.

While a weakening currency means Australian property will be cheaper for overseas investors, households should be cautious as there are a number of indications that suggest the local property market is due for a correction.

Stephen Miller, head of Australian fixed income, BlackRock


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