Australian dollar likely to weaken further

AUD/USD has resumed its descent in recent weeks, hitting a new 6-year low of 0.7350 in mid-July. The fall has coincided with rising concerns over China and weak commodity prices. 

Over the past month, crude oil has dropped back below $60p/b, while copper has fallen over 9% to a new low. Weakening domestic growth prospects and loose monetary policy have added to the downside. The RBA left its policy rate unchanged at a record low of 2% in July. Governor Stevens again stressed that the AUD should weaken further (although in a departure from the previous month, he refrained from giving the market numeric guidance), notes Lloyds Bank. 

Lloyds Bank argues, "Looking ahead, very strong technical support should hold in the 0.72-0.70 region. But the risks are asymmetric: a break below this level would open the way for another sharp drop. More fundamentally, the fortunes of the AUD are likely hinge on whether the improvement in western growth compensates for a slowdown in Asia over the medium term. We believe it will. We project AUD/USD will test 0.70 by end Q3, but to recover steadily thereafter.