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Strategists Lower Australian Dollar Forecasts

05/14/2012 | 04:35am US/Eastern

-- NAB cuts its Aussie dollar forecasts days after CBA does.

-- ANZ says the Aussie could test US$0.9400.

-- Global banks have already turned bearish on the currency.

(Updates with comments from an ANZ strategist in the 11th paragraph.)

   By Enda Curran 

Australia-based currency analysts are revising lower their outlook for the country's exchange rate as Europe's ongoing debt crisis and China's slowdown send the Aussie dollar below parity against the greenback for the first time in five months.

Signs of softness in the domestic economy are also weighing on the Australian dollar as the government enforces tight fiscal settings in order to return a budget surplus and as benign inflation clears the way for more monetary policy easing.

National Australia Bank--one of the country's biggest lenders--said Monday it now expects the Australian dollar to trade at US$0.9800 by September instead of at a previously expected US$1.0200. It also expects the currency to trade at US$0.9700 by the year's end instead of at US$1.0100.

"Unusually, it is the domestic factors which have changed and are likely to drive the Australian dollar lower quicker than we had previously anticipated," said Emma Lawson, a strategist at the bank.

On Monday, the currency slid below US$1.000 for the first time since Dec. 20 to a low of US$0.9976, a move some analysts said clears the way for further losses.

Commonwealth Bank of Australia on Friday dropped its outlook to US$0.9800 by June from an originally forecast US$1.0800, and to US$1.0500 by December instead of US$1.0900.

But the Sydney-based lender remains upbeat that likely stronger growth in Asia means the Australian dollar will stay high.

"We anticipate a mild acceleration in China's gross domestic product growth over the next 12 months," said Richard Grace, CBA's chief FX strategist. "In such an economic environment, it is difficult to get too bearish on the Australia dollar."

Reserve Bank of Australia Deputy Governor Phil Lowe reinforced that opinion at a conference in Melbourne on Monday. "It is likely that we will continue to have a fairly high exchange rate for some time," he said.

Meanwhile, Westpac too has adjusted its outlook after the RBA this month surprised markets with a more-than-expected easing of 50 basis points. The bank now expects US$0.9800 by the end of the September quarter instead of US$1.0200, but is retaining US$1.0400 as a year-end target. In the near term, it said a test of US$0.9900 is likely.

ANZ Bank foreign-exchange strategists say the Aussie dollar could be in for a prolonged correction.

"Without positive news from China or Europe, Australian dollar rebounds will allow for tactical shorts to be built for a series of technical targets, at US$0.9850, US$0.9600 and US$0.9400, before a long-term base develops," they said.

Some of the world's biggest foreign-exchange houses cut their forecasts for the Australian dollar too last week. Credit Suisse and Goldman Sachs expect fresh downside and UBS expects the unit to trade at US$0.9800 in the coming weeks.

"The break of parity is significant; it does show us the psychological level is gone and it's an important line of support out of the way. The downside is clear," said Gareth Berry, a strategist at UBS.

But a still-relatively-strong domestic economy and ongoing demand for iron ore should offer some support.

"There's no sense that the Australia-China ecosystem is starting to break down, and until that does, there's no reason to get excessively bearish on the Australian dollar," Berry said.

-By Enda Curran, Dow Jones Newswires; 61-2-8272-4687; enda.curran@dowjones.com

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