ANZ's Murphy: We expect AUD to $US64¢ by the middle of 2016, then gentle appreciation

Comments from Cherelle Murphy, co-head of economics at ANZ

On the Australian dollar:

We expect the Australian dollar to move lower; in fact we think it will be trading at $US64¢ by the middle of 2016 before it starts a gentle appreciation
Because we expect most of the AUD's depreciation to be over by mid-2016, we also expect the stimulatory effect on the economy to wane. Most of the positive impact of the depreciation of the currency is probably behind us.

On the economy:

Labour market data has recently surprised on the upside
Business confidence has risen
Low interest rates, the sturdy housing market and a lower dollar have supported the economy.
Business investment remains in the doldrums and this is not just because of the mining construction downturn
The capital expenditure survey indicates that many non-mining businesses are in no mood to invest
Softer-than-expected revenue flows for the Commonwealth and most state governments are hindering public demand
Over the next two years we expect some of the drivers that supported growth through 2015 to ease .... growth in household income. ... has been weak for some time due to soft wages growth and the loss of high-paid mining jobs
The Australian dollar is unlikely to boost net exports to the same extent as it has recently
It's quite possible that the strong parts of the economy do not grow strongly enough to offset weaker growth in the soft parts. Under these circumstances, growth is unlikely to reach its potential.

Risks:

Outlook for economies in the Asian region presents a risk to Australia
We don't see significant downward movement in the prices of our biggest exports
Low interest rates, relatively low petrol prices and improving job prospects are all working in households' favour, soft income growth may continue to keep consumption growth capped
Possibility of falling house prices or forecasts of poor retirement income streams keeping Baby Boomer household spending plans restrained
If labour market prospects continue to improve and households feel a renewed sense of security in their employment, household consumption could surprise on the upside