SINGAPORE (July 13): The Australian dollar is expected to weaken further against the greenback for the rest of the year as persistently weak commodity prices exerts downward pressure on the economy, says Heng Koon How, senior FX strategist at Credit Suisse Private Banking and Wealth Management.

“The contracting terms of trade between Australia and its partners continues to drive the AUD lower,” writes Heng in a July 13 report. Pre-existing negative drivers, particularly weaker bulk commodities prices as a result of slower demand from China, continues to weigh down on the Australian economy and the value of its currency.

“This latest leg of AUD weakness is also closely correlated to the latest sell-off in benchmark iron ore prices at below US$50 a tonne,” says Heng.

Even though the AUD/USD has now corrected by a fair bit since its peak above parity three years ago. Heng believes more weakness may be in store for the AUD. The Reserve Bank of Australia has also repeatedly warned that a “further fall in the AUD is both likely and necessary, especially given lower commodity prices.”

Heng is lowering his AUD/USD forecasts to 0.73 in the next three months and lower to 0.69 over the next 12 months, from 0.74 and 0.72 previously. At current spot levels, the AUD/USD is trading at 0.74.

The strategist has also lowered his AUD/SGD forecasts to 0.99 across the next three months and to 0.97 in the next 12, down from 1.02 and 1.01 previously. The AUD/SGD is currently trading on par at 1.00.