BlackRock Takes A Short Position Against The Australian Dollar
Money management firm BlackRock has reportedly bet against the Australian dollar (AUD) based on the expectation that the Reserve Bank of Australia will slash rates.
Craig Vardy, who is in charge of BlackRock's fixed-income division in Australia, stated that the company believes the AUD’s value will drop to the equivalent of 65 U.S cents as soon as next year. The money management firm which controls a portfolio worth $6.52 trillion expects the RBA to cut interest rate to a low of around 0.5% in an attempt to boost Australia’s struggling economy.
Mr. Vardy also stated that The RBA would continue to implement easing measures to cool the economy, which has been heavily affected by the trade war between China and the United States.
The BlackRock executive believes that the Australian central bank is okay with dropping the cash rate below the 1% level. He believes that the RBA is currently in pursuit of higher inflation and lower unemployment in an attempt to secure more traction.
The China-U.S. trade war has been a major force affecting the AUD’s performance
The AUD has shed roughly 3% of its value since the start of the year with the China-U.S. trade standoff taking longer than anticipated. The issue has slowed down global trade and also negatively impacted the prices of currencies and commodities.
The AUD dropped to 68.32 cents against the USD on Tuesday at around the early hours of London’s trading session.
This is the weakest level that the AUD has experienced ever since the flash crash that affected currencies on January 3.
If the AUD continues falling, it might reach the 65 cents mark against the dollar, a level that it last reached in March 2009. Meanwhile, 2019 marks the first time that the RBA has slashed interest rates over the past three years as it attempts to maintain balance in the economy as the AUD goes into free fall.
More companies are jumping on board the interest rate cut expectations
BlackRock is not the only firm that expects the RBA to slash rates. JPMorgan Chase and Franklin Templeton Investments believe that Australian bonds will rally if the country’s central bank drops the rate to the 0.5% level.
The Commonwealth Bank of Australia, which is the biggest lender in Australia recently updated its RBA forecast to include two more rate cut predictions before the end of 2019. The bank's key rate after the revision is 0.75%.
The RBA will likely evaluate the economy once it slashes the rates to 0.75% according to Verdy. Policymakers may then again opt to slash the rate below the 0.75%, but that will most likely happen in 2020. Vardy also believes that the RBA will likely implement a rate cut in July. He also believes that it might be followed by another rate cut not long after that.
Investors are increasingly growing concerned about the AUD's performance, especially with the U.S.-China trade war dragging on for far too long. Although the two countries plan to continue holding talks to solve their issues, there is currently no talk about the possibility of a deal happening any time soon.