Date: Jan 29, 2019

Investors and gold miners will be hoping that a bold prediction that the Australian dollar falls 15% to just US60c comes true – and fast.

The Capital Economics prediction is that the Australian dollar will fall to US60c this year and remain there until 2020 – its previous forecast was for US65c for 2019 and US70c for 2020.

The key to the lower forecast is that Capital Economics thinks the Reserve Bank of Australia will be forced to cut official interest rates from the current 1.5% to just 1% to support the ailing property market.

Iron ore and coal prices set to slide

Capital Economics is also bearish on the Australian dollar because it thinks commodity prices will slide on deepening trade woes in China – particularly Australia’s big volume iron ore and coal exports which make up around a third of our total exports.

Lower interest rates would make the Australian dollar less attractive for investors compared to other countries with higher rates, while lower commodity prices would cut Australia’s trade performance.

Winners and losers

A lower dollar brings with it many notable pluses and minuses.

It would be fantastic for shareholders in many of the large Australian companies that have a lot of offshore earnings, such as CSL (ASX: CSL), Amcor (ASX: AMC) and James Hardie (ASX: JHX), to name a few.

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