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  • Writer's pictureCrest

Recent influences on the AUD- July 2020

The shutdown in Melbourne has led Westpac to decrease its annual forecast for 2020 from a 4% contraction to a 4.2% contraction. However, they are retaining their 3% growth forecast for 2021.

Westpac is forecasting that the Australian economy contracted by 7% in the June quarter. Hours worked contracted by 9.5% in April and 0.7% in May so, although we have not yet seen hours worked data, any recovery in June is likely to be very mild compared to the collapse in April. Accordingly, for Melbourne (and regions including the NSW border, accounting for an estimated 25% of the economy), the base from which Westpac calculated the impact of the latest shutdown is still going to be quite weak compared to full capacity prior to the previous shutdown. That said, it remains unclear how this unexpected development in Melbourne will affect national confidence.

Australia’s recent setback with the virus has not impacted the Australian dollar. On the day of the announcement of the Victorian shutdown the AUD faltered by around US0.4¢ but quickly recovered to be around USD0.695.

Westpac is forecasting an AUD at USD0.72 by end 2020 and USD0.76 by end 2021. Global issues are important for these forecasts. The bank has recently reviewed its outlook for the US economy, revising down the likely growth profile in the second half of 2020 to a mere 2% lift off following the 10% decline in the first half. Even that cautious approach remains threatened by the US issues in dealing with the virus. On the other hand, Westpac anticipates China’s growth at around 15% in the final three quarters of 2020 following its 10% contraction in the first quarter of 2020. Such a contrast in 2020 followed by an expected 5% lift in global growth in 2021 supports its AUD view.

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