The Australian dollar is likely to remain strong in the short term, leaving the domestic bond market well supported, according to Tyndall Asset Management.
Speaking to InvestorDaily, Tyndall’s head of fixed income, Roger Bridges, said in the short to medium term, the Australian dollar is unlikely to change significantly as long as global uncertainty continues.
“Given that the currency is so strong, I would say that our bond market is going to continue to be fairly well supported,” Mr Bridges said.
“Some of the fear mongering about rates rising and the bond markets not really being the place to be is probably a bit overplayed – and it’s always been overplayed.
“In the past, the bond market hasn’t really sold off here as the Reserve Bank has been putting rates up. If the currency prevents that then the bond market will be supported as well.”
Mr Bridges added that the currency will most likely continue to be strong in the near term which will control inflation and allow the central bank to keep interest rates low.
However, he said that in the longer term, as the Australian dollar stabilises and the economy adjusts to its levels, the effect of the high dollar on inflation will wane.
“For interest rates to remain low, inflation (and the outlook for it) needs to remain stable,” Mr Bridges said.
“This either requires domestic inflation to fall or the Australian dollar to not depreciate.”
“If the strength in the Australian dollar is a direct result of overseas QE programs, we could see the official cash rate rising as these programs reverse and the upward pressure they are exerting on the Australian dollar starts to dissipate.”
