What will the Aussie dollar do this year?

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Financial experts from global investment firm PIMCO predict stabilising – but not stellar – growth for Asia this year. Pimco Sydney managing director Robert Mead gives his opinion on whether the moderately-improving developed market growth outlook for Asia is likely to flow through to Australian growth expectations.
“The short answer is no, not over the cyclical horizon. The growth outlook for Australia continues to be weak, even from the starting point of only 2.3% annual GDP growth to September 2013.
“Despite sentiment improving immediately after the recent federal election, so far there is limited evidence of any non-mining investment actually taking place outside of the housing sector. And the most recent consumer sentiment survey indicates confidence may already be weakening.
“In fact, there have been recent announcements of further reductions in the manufacturing sector, which will negatively affect growth expectations over the next few years. In addition, PIMCO’s forecast for Chinese growth remains below consensus, so we do not expect any significant tailwinds from the external sector.

“The clear investment implication of this is to maintain a positive curve position in Australia via an overweight of the front end of the yield curve.

“As rate cuts have been priced out of the Australian yield curve over recent months, the carry and roll-down of three- to five-year bonds have become much more compelling for investors globally, especially in an environment where the Reserve Bank of Australia will be required to keep rates lower for even longer, which PIMCO expects.

“Given our economic outlook, we believe the Australian dollar is likely to weaken further; however, the timing will be strongly influenced by the direction of global central bank policies.”


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