The Aussie dollar is on a downward slope

The Australian dollar is on a downward slope this year, rattled by subdued commodity prices, static interest rates and may dive below US$0.70 by year end.

That’s according to AMP Chief Economist Shane Oliver, who predicts a slippery slope for the AUD against the US dollar based on recent events.

Despite this negative outlook, the Australian dollar was solidly higher against its US counterpart on Tuesday morning as the greenback continues to soften, marking a bounce back for the AUD from last week.

At 0635 AEST on Tuesday, the Australian dollar was worth 74.75 US cents, up from 74.45 US cents on Monday.

CURRENCY SNAPSHOT AT 0635 AEST ON TUESDAY

One Australian dollar buys:

* 74.75 US cents, from 74.45 on Monday

* 83.19 Japanese yen, from 82.92 yen

* 66.51 euro cents, from 66.61 euro cents

(*Currency closes taken at 1700 AEST previous local session)

Also read: “It will change the lives of thousands”: Twiggy donates $400 million to social causes

Westpac’s Imre Speizer said risk sentiment remained high with little news to direct it otherwise, while the US dollar continued falling, dropping 0.2 per cent against a basket of currencies. While the Aussie had fallen off its overnight high, it expected it to resume its rise during Tuesday.

Commodity prices to hit AUD

Despite this latest uplift, commodity prices are likely to remain in a long-term downtrend, thanks to a surge in supply after record investment in projects. The price of iron ore – one of Australia’s principal commodity exports – has fallen back again after a temporary upsurge and oil prices have struggled to maintain upwards momentum with rising supply constraining both, Oliver points out.

Also read: $165 million tax fraud is ‘fake news’: ATO acting commissioner

Oil is hovering at US$49/50 a barrel, while iron ore was priced at US$62.69 a tonne on Friday – marking a fall of around 20% in the year to date.

The likelihood is the Reserve Bank of Australia will sit on rates – or cut them further, which won’t do the Aussie dollar any favours, either.

“The interest rate differential in favour of the $A is likely to narrow further as the Fed continues to hike rates and the RBA remains on hold or maybe even cuts rates. This will make it relatively less attractive to park money in Australia putting downwards pressure on the $A,” according to Oliver.