ANZ’s head of FX is optimistic about the Australian dollar
Mahjabeen Zaman also believes the next RBA rate move is more likely to be up than down and doesn’t envisage rate cuts until late next year.
ANZ’s new head of FX Research, Mahjabeen Zaman, expects the Australian dollar to rally into the year-end as falling business activity in the world’s largest economy weighs on the greenback.
A strong US labour market and robust consumer spending has for months soothed fears of a recession and even led to upward revisions of gross domestic product growth forecasts. But manufacturing and service sectors data released last week by S&P Global painted a more tepid picture for the US economy.
Ms Zaman expects the next monthly reading of the US Purchasing Managers’ Index to show a contraction and if she’s proved right the Australian dollar will climb above US65¢ before Christmas. It’s currently trading around US64.45¢ after tumbling to a nine-month low mid-August.
ANZ’s Mahjabeen Zaman says the Australian dollar will bounce before Christimas. Michael Quelch
Interest rate differentials between the US and Australia and a slowing Chinese economy have pushed the local dollar down US5¢ in the past 12 months to US64.47¢. It is among the worst performing G10 currencies this year along with the New Zealand dollar.
ANZ forecasts the $A to hit US68¢ by the end of next month, rising to US70¢ by year-end, but the projections are under review and will be released “soon”, according to Ms Zaman.
The currency’s rapid descent to a nine-month low earlier this month has already prompted some banks to rethink their forecasts.
Commonwealth Bank said there was a risk the Aussie could fall below US60¢ before year-end, which would be the first time since the start of the pandemic in 2020. And National Australia Bank revised its long-standing forecast of the Aussie at US72¢ by year-end to US66¢.
For ANZ, Ms Zaman said “the $A has a short-term downside, but a long-term upside”.
For now, Ms Zaman who joined ANZ a year ago, believes US62¢ will provide a floor for the currency, and a break below that level would trigger a wave of bargain hunting and propel the $A higher again.
Prior to joining ANZ, the Singaporean-raised economist worked for Standard Chartered, NatWest and Deutsche Bank in rates, credit and private equity. She then moved to Australia to work for Citi as head of investment specialists.
Her team at ANZ includes commodity strategist Daniel Hynes and FX strategist John Bromhead.
Up, not down
On monetary policy, ANZ expects the Reserve Bank of Australia to keep the cash rate at 4.1 per cent for an extended period after the central bank added 4 percentage points since May last year.
Ms Zaman said the next interest rate move in Australia was more likely to be up than down, but it would depend on the quarterly inflation report due out late October. Rate cuts, however, won’t happen until late next year, she predicted.
Bond markets have all but priced in the Reserve Bank to keep rates on hold at next week’s policy meeting and imply a 47 per cent chance to raise rates by March next year. They ascribe a 50 per cent chance of a rate cut in late 2024.
Mrs Zaman believes that the first easing in the developed world won’t happen until the September 2024 quarter.
“When we look at any central bank, inflation is still in the range of 3 per cent to 6 per cent. What is underlying this whole story is strong labour markets and until that softens, it is going to be difficult [for them to cut rates].”
While ANZ forecasts the Reserve Bank of New Zealand to raise interest rates by a quarter of a percentage point to 5.75 per cent in November, Ms Zaman expects the US Federal Reserve to keep rates on hold at 5.375 per cent with a risk they could go higher again, depending on data.
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