Australian Dollar May Fall on Rate Outlook, TD Securities Says

By Ron Harui

Aug. 6 (Bloomberg) -- The Australian dollar may fall as much as 15 percent against the U.S. dollar as the nation's central bank is set to cut its benchmark interest rate 2.25 percentage points by the end of 2009, according to TD Securities Ltd.

The local dollar, known as the Aussie, dropped 4.7 percent in the past month, the worst performance among the 16 most-active currencies, as slowing consumer demand fuels speculation the Reserve Bank of Australia will trim borrowing costs. The Aussie dropped a seventh day, its longest stretch since Sept. 13, 2006, as prices slid for commodities the nation exports such as gold.

``The slow-motion Aussie train-wreck is likely to intensify with a further 10 percent to 15 percent decline on the cards over the next 12 to 18 months as interest rates and commodity prices fall,'' wrote Stephen Koukoulas, London-based head of global foreign exchange and fixed income strategy at the unit of Canada's Toronto-Dominion Bank, in a research note today.

The Australian dollar traded at 91.84 U.S. cents as of 4:10 p.m. in Sydney from 91.85 cents late in Asia yesterday. The currency earlier reached 91.33 cents, the lowest since April 4.

Reserve Bank of Australia Governor Glenn Stevens yesterday said that inflation may slow, allowing for a ``less restrictive stance of monetary policy in the period ahead,'' after a meeting where the RBA kept the overnight cash rate target at 7.25 percent.

Since the central bank's previous meeting on July 1, reports have shown consumer confidence slumped in July to the lowest level in 16 years, retail sales fell 1 percent in June, and lending to consumers and businesses rose at the slowest annual pace since 2002.

Australian Dollar `Vulnerable'

Traders are betting the RBA will lower its benchmark rate by 0.91 percentage point in the next 12 months, up from 0.65 percentage point on Aug. 4, according to a Credit Suisse Group index based on interest-rate swaps.

``Rates are forecast to fall to 5 percent by the end of 2009,'' Koukoulas wrote. ``The Australian dollar is vulnerable to further falls.''

Australia's dollar will probably weaken to 79 cents by the end of next year, TD Securities forecasts. That's more bearish than the median estimate for that date of 87 cents from a Bloomberg survey of 30 analysts. The currency last traded at 79 cents on Aug. 20, 2007, according to data compiled by Bloomberg.

The Aussie also may decline as falling commodity prices hurt the nation's terms of trade, a measure of export earnings, Koukoulas wrote.

The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials has dropped 15 percent since reaching a record high on July 3. Crude oil has lost more than $28 since touching a record of $147.27 a barrel on July 11. Commodity exports such as oil contribute 17 percent to Australia's S1 trillion economy.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net