AUD set for weaker outlook

Australia has had a strong recover over the last 6 months, rising from 62c to 82c to the USD. In the next 6 months I would not be surprised to see the currency come off. There are of course some positives:

1. Some recovery in commodity prices
2. Government stimulated economic activity
3. Residual mining & energy investment
4. Continued weakness in property

The negatives are:

1. Decline in bulk commodity prices - priced annually based on Apr price fixtures for iron ore

2. Rising public deficit

For these reasons I believe the Australian dollar will pull back to 73c, but probably not before rising to 85c. Clearly the justification for a stronger AUD will be a weaker than expected USD. I don't expect this. I believe the US is looking at higher interest rates to boost savings, and higher energy taxes. I believe global warming will provide the justification for a carbon tax, but in this national emergency the proceeds will be spent on anything but the environment. In fact, the whole idea of artificially stimulating economic activity is contrary to stopping global warming. So I am expecting some Clinton-like austerity measures which will be strong on US interest rates, so a strong USD. So I'm expecting a 73c medium term target for AUD-USD.

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Andrew Sheldon www.sheldonthinks.com