Farm sector lender National Australia Bank has revised down its currency forecasts and expects the Australian dollar to enter the New Year as low as US85-86c, according to its November Rural Commodities Wrap.
The report also predicts beef to be the star performer in terms of farm commodity prices next year, likely to rise 7.7 percent on 2014 levels.
NAB’s general manager of agribusiness, Khan Horne, said the A$ was currently reaching levels not expected to be seen until 2015, due to the continued strength of the US$.
“We have also revised our forecast low-point for the A$ from US80c to US78c, which we expect to see in 2016,” he said.
“The lower A$ has been driven in large part by an appreciating US$, combined with falling terms of trade, and more recently, an unexpected decision by the Bank of Japan to further ease policy. This has lent some support to Australian export prices for wheat, beef and dairy since late September.”
“The falling A$ is a real boost for agriculture, and combined with the recent announcement of the China – Australia Free Trade Agreement, conditions for 2015 are looking positive for agricultural exporters,” Mr Horne said.
Looking at commodity price outlooks, beef was the standout for 2015, with prices expected to increase 7.7pc on 2014 levels. Prices for other commodities were anticipated to ease on the back of poor seasonal outlooks and easing global prices.
Price premiums for wheat are expected to be supported coming into summer due to likely higher local feed grain demand resulting from disappointing spring pasture growth in many areas.
The RBA kept the cash rate at 2.5pc in November as expected, and unchanged for 15 months.
“We still don’t anticipate any change in the cash rate until the end of 2015,” Mr Horne said.
“While there are tentative signs of an improvement in household spending, this does not yet signal a sustained change in household and business conditions. In the absence of any major surprises, the cash rate is unlikely to rise until late next year as monetary policy commences its return journey to normality,” he said.
The NAB Rural Commodities Index was down only 0.6pc in A$ terms in October, as a falling A$ offset the effects of falling international commodity prices. In US$ terms, the index was off a more substantial 3.7pc, falling for a sixth straight month.
A$ slides to four-year lows
Meanwhile, the A$ slumped further against the greenback in the past 24 hours, sitting at US85.22c this morning, down US1.1c on yesterday, and trading as low as US 85.14 overnight. It’s the lowest level seen since July 2010, NAB’s daily market report said this morning.
“The A$ has now retraced more than 50 percent of the entire 2008-2011 run-up in value from US60c to US111c,” exchange analyst Ray Attrill said.
The reasons included the weight of A$/JPY selling overnight, as well as comments about a perceived overvalued currency from RBA deputy Governor Phil Lowe in Sydney yesterday.
Mr Lowe also said high relative labour costs in Australia were partly a reflection of high costs in local overseas currency terms, and therefore of the A$ itself. He said the ‘real’ exchange rate was “still quite high”, although he hoped it would stay structurally higher than in the 1990s, when the currency traded in the US60c range.