From Westpac's July outlook for the Australian dollar, this a summary

two key narratives:

US economic strength; and lingering uncertainty over global trade.

  • buoyant expectations over growth hold up despite evidence of building downside risks, for both consumption and business investment
  • sentiment currently rules the day


  • the consequence of President Trump's tariffs are still yet to be seen

for Australia, whereas our currency has fallen 2.6% against the US dollar, on a trade-weighted basis it is broadly flat

  • This again emphasises that the above US dollar move has been unilateral, and the significance of commodity prices for Australia.
  • While the past month has been a poor period for Chinese data, with external demand proxies and domestic fixed asset investment both deteriorating significantly, the price of iron ore exported from Australia was broadly flat; coal prices saw further gains; and the oil price remained elevated. For each commodity, supply is currently a critical support for prices, all the more so for Australia's high-quality producers which the majority of the market cannot match.

For Australian commodity exports in aggregate, we forecast a 14% fall in prices as supply increases and market participants become more circumspect on the outlook for global growth

currency is still likely to be hit

  • From near USD0.74 currently, we continue to look for the Australian dollar to decline to USD0.72 in the first half of 2019, then to USD0.70 in the second.
  • Unlike the experience of the past month, we are also likely to fall on a trade-weighted basis, most notably the Euro (from EUR0.63 to EUR0.58) and Yen (from JPY81 to JPY77), as growth in these jurisdictions holds above potential through 2019 and policy tightening comes into view.

(bolding mine)