Vima Gor, an investment manager who oversees the equivalent of about $11 billion in fixed income assets at BTIM in Sydney on Thursday predicted that the Reserve Bank of Australia will be forced to cut rate from the present 1.75 percent to 1 percent or even lower. According to Gor, the composition of Australia’s recent economic growth data is weak because of the risks posed by the country’s reliance on foreign capital.
“The Australian dollar is at far more risk than most people think,” wrote Gor. “A shock downside could easily see it move to 40 cents against the U.S. dollar if current trends continue, commodities fall to lows again and economic growth deteriorates.”
The investment manager highlighted the deficits in Australia’s current account and its budget, and said that the country’s top credit rating is likely to be reviewed within the next few months.
“The move towards zero for the RBA will be the first for a country so reliant on foreign capital,” he said. “Low rates in an economy like Australia will genuinely be a test of the stability of an economy that has a very specific relationship with the rest of the world.”
The local currency, which traded at 74.14 US cents as of 12:18 p.m. on Friday in Sydney has averaged 88 cents over the past 10 years and has not been lower than 47.76 US cents recorded in 2001. Gor, 40 US cents prediction is lower than the 2016 analysts forecast of 72 US cents and even higher in subsequent years.
Gor, who last month said it is possible the RBA would follow Europe and Japan in taking its rates below zero, has a different view from majority of analysts that predicted 72 US cents for the Australian dollar by the end of 2016 and even higher in subsequent years.