The Australian Dollar’s slide continues, touching its weakest point against the U.S. Dollar since the early days of the pandemic. Now trading at 62 U.S. cents, the question remains: could it drop further? Santiago Capital, widely known for its provocative “milkshake theory” of global monetary dominance, has ignited discussions with its bold prediction of a 45-cent target.
The Australian Dollar’s woes are rooted in a combination of global and domestic pressures. Economic uncertainty linked to U.S.-China trade relations remains a significant factor. Analysts at Bank of America suggest escalating tariffs and a weakened Chinese Yuan could push the Australian Dollar as low as 55 cents, inching closer to Santiago’s bearish outlook.
Australia’s reliance on commodity exports, particularly to China, adds to the vulnerability. With China’s economic slowdown hitting demand for industrial metals, Australia’s resource-dependent economy has found itself in choppy waters. Lower commodity prices directly impact the value of the dollar, amplifying the downward pressure.
Interest rate dynamics are another key consideration. While the Reserve Bank of Australia has held its cash rate steady at 4.35%, the U.S. Federal Reserve’s higher rates continue to attract capital, dampening demand for the Australian Dollar. Stephen Koukoulas, an adviser to Prime Minister Anthony Albanese, weighed in on social media, countering the narrative that the weakening currency would block rate cuts. “It will actually increase the chances of rate cuts if the reasons for the decline are taken into account,” he argued, dismissing claims that rates alone dictate currency movements.
The weakening Australian Dollar presents a mixed bag of outcomes. On one hand, inflationary pressures could rise as import costs soar, complicating the Reserve Bank’s already delicate balancing act. A 10% drop in the currency is estimated to add 0.1 to 0.15 percentage points to inflation, potentially delaying relief for borrowers. On the other hand, exporters might seize the moment, with the weaker currency making Australian goods more attractive on global markets.
Forecasts for the currency’s future remain polarised. Some analysts predict a continued slide to 60 cents in the short term, while others hold out hope for a recovery to around 69 cents by mid-2025, contingent on stabilising global conditions.
As Santiago Capital’s 45-cent target gains traction, the Australian Dollar is left navigating a turbulent economic landscape. Whether it steadies itself or sinks further, the coming months will reveal whether these bearish projections hold weight—or are simply noise in an already volatile market.
