The Australian dollar is looking vulnerable and is headed back below US70c according to some analysts as the reserve Bank of Australia is forced to cut interest rates to breath some life into the economy and push inflation to within their preferred target rate.

Over the last few weeks we have seen a range of disappointing data from Australia such as poor GDP figures and inflation numbers which has caused the RBA to change their tone in recent speeches by adding the option of a rate cut to the table.

This is a stark change from only one month ago where the RBA whre preparing the market for a rate hike later in the year.

While the risks around a deterioration in the external environment, particularly China], appear to have receded for now, this may be masking the growing risks from the second, which is gathering momentum and deserves more attention,” said HSBC Currency Strategist Tom Nash

“This includes a weaker-than-expected Q3 GDP print, the biggest monthly drop in surveyed business conditions since the Global Financial Crisis, a 22.5% year-ended fall in building approvals and monthly retail sales that turned negative in December, confirming two soft quarters of consumer spending,” he added.

Any potential rate cuts from the RBA are going to have dire consequences for the Australian dollar as it would make Australia have one of the lowest interest rates which will see yield chasing investors exit the currency in droves.

This will see the Aussie dollar hit levels not seen in a long time

“Our forecast remains for AUD/USD to trade down to post-crisis lows of 0.6600 by year-end.” Mr Nash added.

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