It is not a fashionable call to be optimistic when it comes to the Australian dollar coming into 2019 and we will caveat our optimism by saying that the first half of the year could be a volatile couple of quarters; gains for the AUD may come easier from the summer onwards.

The AUD, much like the NZD is exposed to both China and the US’s cycle of increasing interest rates, although the Aussie finds itself more exposed courtesy of higher household debt level on a relative basis and by the simple fact that it is a more liquid currency than its antipodean neighbour.

The stories that drove the volatility in currency markets in 2018 don’t vanish as the fireworks go off on the Sydney Harbour Bridge and a new year rolls in. Chinese growth concerns, US/China trade spats, instability in emerging markets and wider commodity price compression will all have a part to play in the movement of the Aussie in the coming 12 months.

Chinese demand for steel, and in turn Australian iron ore should remain solid with any demand that had previously been used for exports likely transposed into infrastructure projects. Similarly, natural gas exports should remain strong.

There is the small matter of a general election in Australia this May which will always be enough to keep the AUD under pressure for a month or so although we are not expecting a huge political upset.

The Reserve Bank of Australia will continue to emphasise that interest rate hikes are more likely than cuts and whilst we see no change in rates in Australia for at least a year, an increase in wages will naturally drive expectations and the AUD higher.

We anticipate AUD trading between 0.70 and 0.76 in 2019

Market expectations of what will happen to the AUD versus the USD are below alongside the predictions of the 5 most accurate forecasters as measured by Bloomberg.

Source: Bloomberg as at 27/12/18

The full list of our 2019 currency outlooks can be found here.