Vimal Gor of BT Investment Management says previous dollar forecasts have been too optimistic.
One of Australia’s largest listed global fund managers has sounded the alarm over the nation’s reliance on foreign capital, warning we are facing a unique set of challenges that could force the Australian dollar down to US40c.
Vimal Gor, head of income and fixed interest at BT Investment Management, makes the projection in his latest newsletter outlining the state of the economy.
He contends the rapid rise in the nation’s debt since the financial crisis, combined with a Reserve Bank eager to avoid the risks of deflation, will ensure a plunge in the local currency.
“The unique combination of a large and increasing reliance on foreign capital and fast falling interest rates means that the Australian dollar is at far more risk than most people think,” he wrote.
“A shock downside could easily see it move to 40c against the US dollar if current trends continue, commodities fall to lows again and economic growth deteriorates.
“This is a highly likely outcome given the weakness in the composition of the latest GDP numbers.”
Mr Gor said BTIM now had US40c as its base case, with its former projection of US50c labelled “too optimistic”.
The comments follow a recent uptick in the local unit as the US Federal Reserve is seen less likely to hike rates and after the RBA decided against outlining an easing bias at its June policy meeting.
At 10am (AEST), the Australian dollar traded at US74.15c, down 0.8c from yesterday’s one-month high, but well clear of recent lows around US71c. Its lowpoint in the current cycle has been US68c.
Mr Gor has long been sceptical of the ability for Australia to maintain a cash rate above much of the developed world and correctly picked the rate cut last month, but is adamant the RBA is not done.
“In the RBA SOMP (statement of monetary policy) following the cut the RBA ‘marked to market’ its view and has clearly started the next rate cutting cycle which will take rates to 1 per cent, if not lower,” he said.
BTIM tips moves by the RBA to have little impact on inflation, but given it has the capacity to cut it is expected to do so.
Mr Gor said the lower rates and falling dollar would be a test for how much the rest of the world is willing to support our rising debts.
“This relationship (with the rest of the world) has become one of ever increasing reliance on foreign capital to continue to do business, and allow us to live beyond our means,” he said.
“When the commodity boom was in full force everyone wanted to be Australia’s best friend, but since the commodity boom ended with a whimper in 2014 Australia has become the little weedy kid no one wants on their team.”
Vimal Gor of BT Investment Management says previous dollar forecasts have been too optimistic.
One of Australia’s largest listed global fund managers has sounded the alarm over the nation’s reliance on foreign capital, warning we are facing a unique set of challenges that could force the Australian dollar down to US40c.
Vimal Gor, head of income and fixed interest at BT Investment Management, makes the projection in his latest newsletter outlining the state of the economy.
He contends the rapid rise in the nation’s debt since the financial crisis, combined with a Reserve Bank eager to avoid the risks of deflation, will ensure a plunge in the local currency.
“The unique combination of a large and increasing reliance on foreign capital and fast falling interest rates means that the Australian dollar is at far more risk than most people think,” he wrote.
“A shock downside could easily see it move to 40c against the US dollar if current trends continue, commodities fall to lows again and economic growth deteriorates.
“This is a highly likely outcome given the weakness in the composition of the latest GDP numbers.”
Mr Gor said BTIM now had US40c as its base case, with its former projection of US50c labelled “too optimistic”.
The comments follow a recent uptick in the local unit as the US Federal Reserve is seen less likely to hike rates and after the RBA decided against outlining an easing bias at its June policy meeting.
At 10am (AEST), the Australian dollar traded at US74.15c, down 0.8c from yesterday’s one-month high, but well clear of recent lows around US71c. Its lowpoint in the current cycle has been US68c.
Mr Gor has long been sceptical of the ability for Australia to maintain a cash rate above much of the developed world and correctly picked the rate cut last month, but is adamant the RBA is not done.
“In the RBA SOMP (statement of monetary policy) following the cut the RBA ‘marked to market’ its view and has clearly started the next rate cutting cycle which will take rates to 1 per cent, if not lower,” he said.
BTIM tips moves by the RBA to have little impact on inflation, but given it has the capacity to cut it is expected to do so.
Mr Gor said the lower rates and falling dollar would be a test for how much the rest of the world is willing to support our rising debts.
“This relationship (with the rest of the world) has become one of ever increasing reliance on foreign capital to continue to do business, and allow us to live beyond our means,” he said.
“When the commodity boom was in full force everyone wanted to be Australia’s best friend, but since the commodity boom ended with a whimper in 2014 Australia has become the little weedy kid no one wants on their team.”
Yep.
Gold and lithium at this time.
Can't think of anything else.
Oh there is one thing, but it is a long shot and I am not set yet, only bought 10% of what I want.
When I am set and it is printed in a mainstream news article I will elaborate.
Good luck. The rises in gold shares is nothing short of phenomenal. Only lithium is keeping up. Peter
Golden days, old boy. I shudder at the alternative I could've taken with buying a pile of bricks. People say property is "safe" and stocks are "risky". Public companies actually make things and employ people. Entire towns derive their existence from the hard yards done by companies I'm proud to invest in. They push the envelope and generate the cash that specufestors are only too happy to siphon off in crippling rents thinking that doing nothing but being landlords entitles them to a free ride for life. Well, they're seeing the other side of the coin now, aren't they? Interestingly, America's wealthy/elite hold less than a 1/3rd of their wealth in property. And that includes their multiple palatial homes for private use. They no stupid. If you want to make money you need to push ahead, not sit idle.
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