By Bianca Hartge-Hazelman
The Australian dollar is expected to keep holding firm against the currencies of its major trading partners, even if takes another dive against the greenback this week ahead of moves by the European Central Bank to announce up to €1 trillion ($1.41 trillion) in stimulus through a massive bond buying program.
At 8.30am AEDT, the local currency was trading at US82.16¢, down from Friday's local close of US82.34¢, and down about 0.64 per cent against the common currency at 71 euro cents.
Westpac’s senior market strategist, Imre Speizer, added that lower Australian dollar and weaker commodity prices, together with a stronger US dollar should continue to weigh on the local currency with last week’s dip to just above US80¢ being “ a tentative base only.”
"The Australian dollar is being affected by two strong influences currently. The weakening of commodity prices and the lacklustre domestic economy are pulling it lower while safe haven flows are keeping it overvalued relative to historical norms. This situation is likely to continue for the foreseeable future," said BT Investment Management head of income and fixed interest Vimal Gor.
"The US dollar is embarking on a massive bull-rally that could see it strengthen over 50 per cent over a number of years, this is worrying for growth and inflation everywhere else.
Westpac's senior market strategist, Imre Speizer, added that lower Australian dollar and weaker commodity prices, together with a stronger US dollar should continue to weigh on the local currency with last week's dip to just above US80¢ being " a tentative base only."
ECB President Mario Draghi is this week expected to announce the expansion of Europe's quantitative easing (QE) asset purchase program to include corporate and sovereign bonds. There is also speculation that the plan may include some sort of compromise following a deal struck with Germany, for the responsibility and risk for buying government bonds to fall on national central banks.
Such a move comes roughly six years after the financial crisis prompted the Bank of England and the US Federal Reserve to unleash full-blown QE programmes aimed at restoring economic growth. To date, the US program has been more effective at rebuilding the American economy, while Europe has continued to drag its feet.
The announcement also comes not even a week after the Swiss Central Bank's decision to abandon its cap between the Swiss franc against the euro.
"The euro can be expected to weaken materially further going forward as the QE program in Europe is introduced. A very large scale of QE is required over the coming years to rescue the Eurozone and this will have ramifications on its currency," said Mr Gor, who last week saw his BT Wholesale Fixed Interest Fund claim top performing Australian Composite Bond fund for 2014 on the Morningstar numbers and on Mercer's most recent performance survey.
The Australian dollar is about 6.7 per cent higher against the euro over the past month and on a trade-weighted basis, that is against the currencies of its major trading partners, the Aussie is up 1.32 per cent this year.