Forecasts: Australian Dollar (AUD), New Zealand Dollar (NZD) & Rand (ZAR) Exchange Rates Forecasted To Decline On Commodity Market Predictions

August 3, 2014 - Written by John Cameron

STORY LINK Forecasts: Australian Dollar (AUD), New Zealand Dollar (NZD) & Rand (ZAR) Exchange Rates Forecasted To Decline On Commodity Market Predictions

Geo-political risk events weighed heavily on investor sentiment during the latter part of last week’s session. The advent of a fresh ‘risk-off’ trading environment caused a pronounced dip in world equities markets, with New York’s benchmark Dow Jones Industrial Averaging shedding as much as 300 points during the final 48hrs of the week.

Let's look at the updated exchange rates today:

- The Pound to Australian Dollar exchange rate is trading up +0.02% at 1.80790 GBP/AUD.
- The Pound to New Zealand Dollar exchange rate is trading up +0.06% at 1.98028 GBP/NZD.
- The Pound to Dollar exchange rate is trading up +0.07% at 1.68789 GBP/USD.
- The Pound to Rand exchange rate is trading down -0.02% at 17.96586 GBP/ZAR.

The move to safe haven assets from investors would normally spark a downside movement for risk-driven currencies including the Australian and New Zealand Dollars (AUD & NZD) and the high-yielding South African Rand (ZAR). However, the Antipodean Dollars held up well during the last two days of the week, with the Pound New Zealand Dollar (GBP/NZD) exchange rate once again convincingly rejecting the two to one level which it had made a run at during the early part of the week.

Meanwhile, the Pound Sterling Australian Dollar exchange rate dropped to finish the week at 1.8062 GBP/AUD. However, the pair is likely to receive fresh impetus tomorrow morning when the Reserve Bank of Australia makes its latest policy announcement. Expect the Aussie central bank to avoid an interest hike whilst jawboning the local tender lower.

Looking at the bigger picture, the Aussie and Kiwi Dollars, along with the Rand, may well be in for a rough ride during coming years if a recent report from leading investment bank Goldman Sachs is to be believed. Global prices for raw materials have incurred an annual loss during each of the past three years and Goldman’s Chief Currency Strategist Robin Brooks observed in a report last month that this movement had been driven by a structural change in the world’s commodity markets – ‘a prolonged period of elevated commodity prices has catalysed a supply response.’

A surge in demand for raw materials to fuel China’s rapid industrialisation saw commodity prices increase by over 100% between 1998 and 2010. Although this year has brought an increase of over 3% in the value of a broad basket of raw materials, the majority of analysts, including those at Goldman’s, are now calling the end of the post-1998 super cycle in raw material prices.

The prediction led the market-watchers at Goldman Sachs to conclude that, ‘our long-term commodity forecasts suggest that fundamentals for commodity currencies will deteriorate.’ Any near-term positive data releases from the world’s major economies could delay the move out of AUD, NZD and ZAR. Look for the latest HSBC survey of China’s combined services industries, out during the early hours of tomorrow morning, or tomorrow afternoon’s US ISM non-manufacturing data to trigger such a bout of short-term support for the high-yielders.

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