AUD/USD: Some further decline before eventual stabilization – Wells Fargo

Analysts at Wells Fargo, expect some further decline in the Australian dollar before eventual stabilization. They forecast the Australian economy to contract 2.2% for the full-year of 2020.

Key Quotes: 

“Since the start of 2020 the Australian dollar has fallen over 13%, and is one of the worst performing currencies among its G10 peers this year. We do expect some further decline in the Australian dollar in the near term, with the dual threat of the coronavirus outbreak and potential for lower commodity prices headwinds for the Australian dollar, before the currency eventually stabilizes and recovers over the longer-term as the effects of the virus dissipate and the U.S. dollar softens.”

“We see the risks around this outlook as broadly balanced as we believe the current value of the Australian dollar already reflects an extremely negative economic scenario, though we acknowledge a moderate downside bias to our target low. The risk of even further weakness should largely depend on how China navigates the crisis as well as trends in Australia’s key commodity prices.”